Summary
This article summarizes Fehr v. Sun Life Assurance Company of Canada, 2024 ONCA 847, in which the Ontario Court of Appeal upheld the motion judge's decision to dismiss the representative plaintiffs' motion to add a new common issue to a certified class proceeding and amend their statement of claim. The court found that the plaintiffs' new claim, relating to a breach of contract for “investment spread” increases, was statute-barred under the Limitations Act, S.O. 2002, c. 24, Sch. B because it was discoverable in 2016 when relevant documents were disclosed, and the plaintiffs and their counsel did not exercise reasonable due diligence at that time.
The court rejected the plaintiffs' argument that a rolling limitation period should apply, holding that the investment spread increases in 2001 and 2014 were discrete breaches, not ongoing ones. The court emphasized that the knowledge of class counsel could be imputed to the entire class, and the discoverability of the claim depended on what was known to the representative plaintiffs and their counsel during the litigation. The appeal was dismissed, and costs were awarded to the defendant.
Background
The class action involves claims related to the sale and administration of universal life insurance policies by MetLife, now Sun Life. The policies allowed for flexible premium payments and included charges for cost of insurance (“COI”) and administrative fees.
The plaintiffs initially claimed misrepresentation, breach of contract, and breach of the duty of good faith and fair dealing. The class action was certified in 2020 with five common issues focused on breach of contract claims related to COI and administrative fees.
After the class action was certified, the plaintiffs wanted to add a new common issue regarding the “Investment Spread Claim,” alleging that the insurer improperly increased the investment spread on certain life insurance policies in 2001 and 2014 without proper justification or disclosure. The plaintiffs argued that the increased investment spread reduced the interest credited to policyholders’ accounts. They claimed this was a breach of contract because it was a breach of implied policy terms and the duty of good faith (“investment spread breach”).
The plaintiffs argued that the claim regarding the investment spread was not discoverable until they received a specific document following further productions from Sun Life in 2022. They claimed that only upon receiving this document did they understand that the insurer had adjusted the investment spread to keep more of the investment profits for itself.
The plaintiffs argued that they should be permitted to amend the common issues and the statement of claim for the investment spread breach because it was an ongoing breach and therefore a rolling limitation period should apply. The plaintiffs asserted that each time Sun Life deducted an excessive investment spread from the interest credited to the policyholders’ accumulation funds, a new breach of contract occurred. They claimed that the breach was not a one-time event in each of the years 2001 and 2014, but that these deductions happened periodically (e.g., weekly), and each deduction should be treated as a separate breach.
The plaintiffs argued that because the alleged breaches were recurring, a rolling limitation period should apply. This means that the limitation period would reset with each new breach, allowing them to claim for breaches that occurred within two years of their motion to amend the statement of claim. They drew a parallel to the previously certified common issues regarding the COI rates and administrative fees. They noted that the court had recognized a rolling limitation period for these claims, where each monthly deduction was treated as a discrete breach. They argued that the same logic should apply to the investment spread increases.
However, Sun Life argued that the investment spread claim could have been discovered earlier and the claim is out of time because all the necessary material facts necessary for the claim were disclosed to the plaintiff’s counsel in a document attached to an affidavit filed by the defendant in 2016. As a result, Sun Life also sought to strike out portions of an expert report by the plaintiff’s proposed expert relating to the investment spread claim.
Court’s decision
Lower Court decision
The motion judge determined that the document produced in 2016 to the plaintiffs contained sufficient information to allow the plaintiffs to determine whether they had a claim relating to the investment spread issue. Notably, the 2016 document included recommendations to increase the investment spread and detailed how these increases would affect profits. The motion judge also denied the plaintiffs argument that even with the 2016 document they needed more information to understand that they had a claim. The motion judge found that even if they needed more information, they had sufficient information about investment spread to begin to ask questions. She found that plaintiffs counsel had not asked any questions in cross-examination on the 2016 affidavit containing the relevant documents and therefore, the plaintiffs therefore did not exercise reasonable due diligence with respect to the investment spread issue. As a result, the motion judge found the investment spread claim to be out of time.
Having denied the plaintiffs’ motion to add a new common issue relating to investment spread, the motion judge also struck portions of the plaintiffs’ expert report relating to the plaintiff’s proposed investment spread claims because these issues were irrelevant to the certified common issues.
The motion judge also struck other portions of the proposed expert report because they also went beyond the common issues and would require significant additional documentary discovery, resulting in further delay and costs.
Court of Appeal decision
The Court of Appeal upheld the motion judge’s decision, finding no reversible error. The court agreed that the Investment Spread Claim was a new claim not covered by the existing pleadings and was discoverable in 2016 when relevant documents were disclosed. Therefore, the claim was statute-barred under the Limitations Act, S.O. 2002, c. 24, Sch. B.
Before the Court of Appeal, the plaintiffs argued for the first time that limitations period defences are individual issues and that any knowledge of the investment spread claim arising out of the 2016 documents that their counsel received should only be imputed to the seven individual plaintiffs and not to the entire class, as the class had not yet been certified when the documents were disclosed.
The court rejected this argument, holding that the discoverability of the investment spread claim depended on what was known to the representative plaintiffs and their counsel during the litigation. The court emphasized that the knowledge of class counsel could be imputed to the entire class, especially because the claim was discoverable based on information disclosed during the litigation.
The Ontario Court of Appeal rejected the plaintiffs’ argument for a rolling limitation period.
The court found that the Investment Spread Claim involved discrete breaches that occurred in 2001 and 2014, not ongoing breaches. The increases in the investment spread were specific decisions made at those times, causing continuing damage but not constituting new breaches with each deduction.
The court applied the “Richards distinction” (referring to Richards v Sun Life, 2016 ONSC 5492, as discussed in Karkhanechi v. Connor, Clark & Lunn Financial Group Ltd., 2022 ONCA 518). This distinguishes between two types of breach of contract claims: (i) periodic payments, and (ii) entitlement to period payments. The first situation involves cases where a plaintiff is entitled to periodic payments, so each failure to make a payment is considered a new breach giving rise to a new cause of action. This is considered a “rolling” limitation period. The second situation involves cases where the issue is whether the plaintiff was entitled to the periodic payment in the first place. In these cases, discovering the claim arises at the time the plaintiff first alleges they became entitled to the payments. Therefore, the limitation period starts running from that point in time.
The court concluded that the Investment Spread Claim fell into the latter category, where the material facts for discovery arose at the time of the initial breach.
The court emphasized that without a new breach, there is no basis for applying a rolling limitation period. The plaintiffs’ claim was based on the initial decisions to increase the investment spread, not on each subsequent deduction. This Court underscored the importance of understanding the nature of the breach when considering the application of limitation periods.
The appeal was dismissed, and costs were awarded to Sun Life.
Takeaways
The Court of Appeal’s decision gives the class action bar guidance on the availability of dismissing a claim, especially in the context of an amendment to the statement of claim sought after certification, based on an expired limitation period.
Notably, the Court of Appeal held that the motion judge did not err when she concluded that the Investment Spread Claim was discoverable based on information disclosed during the litigation in 2016. The information was available to the class members through their counsel and was a sufficient basis for them to understand that they had a claim within the meaning of the Limitations Act, S.O. 2002, c. 24, Sch. B.
This decision clarifies that in determining discoverability for the purposes of applying a limitations bar, the knowledge of class counsel can be imputed to the entire class, rather than only the proposed representative plaintiffs, even before certification. The Court of Appeal clarified when a limitations period defence can be a common issue, holding that in this case the material facts relevant to the limitations defence are not based on what individual class members knew or did. Rather, discoverability of the claim depended only on what the representative plaintiffs and their lawyers knew while managing the litigation on behalf of the class.
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