In the most recent class action decision released by the Ontario Court of Appeal, Mandeville v The Manufacturers Life Insurance Company, 2014 ONCA 417, Justice Gillese, writing for a unanimous Court, upheld the trial decision dismissing the plaintiffs’ claim against one of Canada’s leading insurers. The plaintiff class alleged that Manulife owed them a duty of care to ensure that they would participate in the distribution of the value of Manulife when it converted from a mutual insurance company into a stock company — a process known as demutualization.

The certified class was comprised of approximately 8,000 residents of Barbados who had participating policies with Manulife that were transferred to Life of Barbados Limited (LOB), a Caribbean-based insurer, in 1996. In 1999, three years after the transfer of the policies to LOB, Manulife demutualized. Pursuant to the demutualization, a total of $9 billion in value was distributed to participating policyholders in the form of cash and shares in the company. However, due to the transfer of policies from Manulife to LOB, the class members were not participating policyholders at the time and, therefore, were ineligible to share in the value of Manulife on demutualization.

The class members’ action against Manulife was primarily based in negligence. The negligence claim was founded on a novel duty of care and was based on allegations that Manulife knew that it was going to demutualize when it transferred the policies to LOB and that it ought to have structured the transfer in such a way so as protect or preserve the class members’ rights to share in the value of Manulife on demutualization.

After a lengthy common issues trial, the trial judge dismissed the action. While the trial judge found that Manulife owed a prima facie duty of care to the class members on the bases of foreseeability and proximity, he ultimately declined to impose a duty of care due to certain policy factors, including the fact that the class members had no legal right to remain policyholders of Manulife since the statutory regimes of both Canada and Barbados expressly authorized the transfer.

The primary issue on appeal was whether the trial judge erred in failing to recognize the duty of care asserted by the class. The Court of Appeal ultimately answered this question in the negative. It found that the harm that the class members suffered was reasonably foreseeable. However, the Court held that the relationship between the class members and Manulife was not sufficiently proximate to give rise to a duty.

When assessing proximity in the first stage of the Anns test, the Court narrowly focused on the specific interests that the class members asserted were harmed — their claim for demutualization benefits. As large cap mutual companies like Manulife were not legally allowed to demutualize in 1996 — the time that the policies were transferred to LOB — the class members had no recognizable right to share in the benefits of demutualization. Accordingly, the Court of Appeal characterized the class members’ interest as “at most a hope or mere expectancy” that if and when Manulife could and did demutualize, they would still be participating policyholders and have a right to share in that value. The Court of Appeal concluded that the tenuous and inchoate nature of the class members’ interest militated against finding that it was “just and fair” in the circumstances to impose a duty of care upon Manulife.

At the second stage of the Anns test, the Court found that concerns regarding indeterminate liability and a multiplicity of inappropriate lawsuits further militated against imposing a duty of care. For instance, recognition of such a duty could lead to claims by participating policyholders in other mutual insurance companies who are similarly situated to the transferred policyholders. It could also lead to claims for economic loss by participating policyholders of mutual insurance companies that have decided not to demutualize.

The Court of Appeal’s decision reinforces the fact that, when deciding whether a duty of care will be recognized, claims for pure economic loss will be subject to greater scrutiny. The Court’s decision is reassuring for potential corporate defendants as it limits the imposition of a duty of care in such circumstances to instances where there is a tangible, legitimately vested legal interest, contemporaneous with the alleged negligence, rather than just a “hope or mere expectancy” of receiving a future financial benefit. Further, in the class actions context, where it is a novel duty of care that is being asserted, the court may be even more reluctant to recognize a duty. In this context, policy considerations on the second branch of the Anns test may figure more heavily and be heightened due to the potentially broad scope of the duty of care’s application and the palpable risk that the floodgates of liability could be opened if it is recognized.

On a more general level, the decision represents a welcome victory for defendants across the country. As the bar for certification (particularly in Ontario) has been lowered in recent years, trials on the merits are becoming more common. The Manulife case represents one of the rare instances to date where a defendant has successfully seen an action through from certification to trial and appeal.

Alexander C. Payne