The Ontario Superior Court of Justice has approved a settlement worth between $1.6 million and $2.03 million in a class-action lawsuit against Toronto-based Manulife Financial Corp., involving alleged breaches of contract on certain life insurance policies.
Justice Paul Perell approved the settlement agreement that the parties had reached in June at a hearing in Toronto on Tuesday in Allen et al v The Manufacturers Life Insurance Co. The action, which was certified as a class proceeding in June for settlement purposes, involves approximately 170 class members. The total amount of damages awarded will depend on the elections made by eligible class members.
“We are pleased that the court has approved this settlement,” says Manulife in a statement, “finding that it was fair, reasonable and in the best interests of the class.”
The case involves adjustable life insurance policies and alleges that Manulife failed to notify policyholders of adjustments to their premiums as required under the policy, resulting in some class members’ policies lapsing.
The policies in question, called TermPlus, were originally issued by Maritime Life Assurance Co., which Manulife acquired in 2004. The policies are structured such that policyholders pay premiums into an accumulation fund maintained by the insurer. The insurer then deducts the cost of insurance and general expenses from the accumulation fund, with the remaining money collecting interest.
Both the charges and the interest rate on the accumulation fund are adjustable at set times. According to TermPlus policies, the insurer is required to notify policyholders of these adjustments every five years. In addition, the insurer must notify policyholders if the money remaining in the accumulation fund is expected to be insufficient to cover the charges going forward.
Policyholders then have the choice to pay higher premiums to maintain their coverage amount, or pay the same premiums and accept reduced coverage. The policy is designed to be fully paid up 30 years after issuance.
The case, being prosecuted by Toronto-based Kim Orr Barristers P.C., alleges that Manulife failed to honour its commitments and provided no adjustment notices to TermPlus policyholders for many years. The action further alleges that when Manulife identified its breach, it did not correct the error and instead attempted to coerce policyholders into paying much higher premiums or accepting much lower coverage amounts by threatening to terminate their policies without any benefit to the policyholders.
The action alleges breach of contract, misrepresentation, and breach of the duties of good faith and fair dealing by Manulife.
In the case of the representative plaintiffs, Wendell Allen and Linda Allen, the couple purchased a TermPlus policy in 1986 with a $200,000 face value and a monthly premium of $138.97. They also purchased, as a rider, a TermPlus policy for Mrs. Allen, with a face value of $93,044 and monthly premium of $38.52.
In January 2014, Manulife notified the couple that the premiums they had been paying had not been sufficient to sustain the policy, and due to Manulife’s error, they had not received adjustment notices. As a result, Mr. Allen’s policy had an accumulation amount of negative $15,837.41 and Mrs. Allen’s policy had an accumulation amount of negative $486.46.
Manulife informed Mr. Allen that in order to maintain his coverage amount, he would be required to pay a higher monthly premium of $656.41 until August 2016. Similarly, Mrs. Allen would face higher monthly premiums of $170.34.
Alternatively, Manulife offered the couple the option of reducing their coverage significantly in order to keep the monthly premiums at lower levels.
“As a retired couple, the Allens could not afford to more than quadruple their premiums, or reduce the face amount of their policies to a fifth of what they had originally contracted for in order to sustain life insurance coverage,” the reasons for decision states.
Under the settlement, Manulife will top up amounts in policyholders’ accumulation accounts to return the class members to the position they would have been in if they had received the proper adjustment notices. Manulife will also offer to reinstate policies that were terminated due to surrender or lapse.
“The settlement in the immediate case is excellent,” said Justice Perell in the reasons for decision. “It puts Class Members in a position that is at least equal to but often better than the position that they otherwise would have been in if they had received the Adjustment Notices in accordance with the policy.”
Justice Perell added that the settlement provides the class members benefits beyond what they could have achieved at a trial.
“I conclude that the settlement is fair, reasonable, and the best interests of the Class Members,” he said.
Photo copyright: Bloomberg