New claim of unfair 'investment spread' increases on decades-old policies amid interest rate fluctuations rejected
A group of plaintiffs seeking to amend their action against Sun Life over decades-old universal life insurance policies have hit a roadblock in Ontario’s Superior Court of Justice.
According to a decision dated April 27, the group led by Eldon Fehr bought universal life insurance policies in the ‘80s and ‘90s from Metropolitan Life Insurance Company. The bulk of MetLife’s Canadian business was acquired in 1998 by Mutual Life Insurance Co., which was subsequently renamed Clarica Life Insurance Company and later amalgamated with Sun Life.
The plaintiffs alleged that on several occasions, Sun Life repriced its Universal Flexiplus policies to increase the monthly cost of insurance (COI) and administration fees on them. Those charges are deducted from an accumulation fund within the policies, a feature that allows policyholders to generate savings on a tax-deferred basis.
They contended the repricings were “based on factors that were not permitted under the policy terms," and that Sun Life “administered the policies in such a way as to conceal its (alleged) breach of contract.”
Fehr and other policyholders also sought to amend their action with a new common issue, questioning Sun Life’s decision effective March 2001 to increase the “investment spread” annual rate charged against Flexiplus policyholders’ accumulation fund balances from 1.25% to 1.75%.
“[T]hey allege that, in addition to increasing the COI and administrative fees, the insurer took a greater share of the investment profits by increasing the investment spread, all to shore up the profitability of the policies,” the decision said. “They argue that the increase in the investment spread was not detectable by the policyholders as it was subsumed in the broader market interest rate fluctuations affecting investments in the accumulation funds, and the policyholders were never advised of the investment spread increase by the insurer.”
Sun Life denies any breach of contract and does not accept the plaintiffs’ arguments about how it administered the insurance policies.
The presiding judge found that the plaintiffs weren’t able to show a link between how interest rate spreads are determined and rates for daily interest, in contrast to the evidence supporting Sun Life’s argument that they’re not related.
The plaintiffs, the judge added, did not attempt to argue that the investment spread levels impaired their “ability to obtain vanishing premium benefits and avoid policy depletion or lapse.”
The judge dismissed the plaintiffs’ motion to amend the action, ruling that it was “out of time.”
The defendants sought all-inclusive partial indemnity costs of $471,896.65, while plaintiffs’ costs outline supported partial indemnity costs of $50,705.79.
“I fix the reasonable partial indemnity costs of this motion at $75,000, all-inclusive,” the judge said. “The plaintiffs shall pay this amount to the defendants within 30 days.”
