A Corporate David and Goliath: The Epilogue
In the Fall 2006 edition of Legal Issues we told you about Reg Ward’s battle with Manulife.
Reg is an insurance agent who, after many years of faithful and productive service, was unceremoniously dumped by Manulife. Although Reg won a solid victory against Manulife at the Superior Court of Justice, the latter chose to appeal the decision.
A Recap
In 1967, Reg Ward became an insurance agent affiliated with Monarch Life. With persistence and hard work Reg built up a solid reputation with the company and became one of Monarch’s top salespeople. In 1983, Reg became associated with North America Life when it purchased Monarch.
In 1991, Reg entered into an agreement with North American Life to be paid 5% commissions on all policies he had sold from 1967 onwards. These commissions represented his retirement fund and the right to receive them had vested.
In 1996, North American Life and Manulife merged their operations and continued operating under the Manulife name. Following the merger, Reg was presented with a Producer’s Agreement on a take it or leave it basis. At the time, he was assured that his previous agreement concerning payment of the vested premiums would continue.
A year after the merger, things turned sour for Reg. For no reason, Manulife then gave Reg a 30-day notice terminating the Producer’s Agreement. In the months following the termination, Manulife assigned Reg’s clients to other agents, it sent Reg a cease and desist letter when he began contacting his clients in an attempt to salvage his business and it froze his commission account. Manulife also filed complaints with the Ontario Insurance Commission in an attempt to have Reg’s licence suspended and made threats about contacting the RCMP’s fraud unit.
Reg was not a young man and Manulife’s actions began to take a toll on his health. Instead of looking forward to his retirement, Reg was forced to continue working to support himself and his wife.
The Trial
Following a lengthy trial, Reg Ward was vindicated on all fronts. Manulife was ordered to pay Reg $267,000 representing his past earned commission income. Manulife was also ordered to provide for the payment of commissions in the future. Reg was awarded damages in the amount of $150,000 for Manulife’s breach of its fiduciary duty and punitive damages in the amount of $250,000.
The Appeal
Manulife appealed the decision to the Ontario Court of Appeal.
It should be understood that an appeal is not a new trial and that with limited exceptions the appeal court will not hear new evidence. Rather, the job of the appellate court is to review the trial judge’s interpretations and findings of law for errors. Unless the trial judge has made a palpable and overriding error of law, the lower court’s decision will generally stand.
In this appeal, Manulife raised five main issues. With the exception of a minor cost premiums issue, the appellate court dismissed Manulife’s appeal in its entirety.
The Commissions
Contrary to Manulife’s assertions, the trial judge concluded that the commission structure originally agreed to by Manulife and Reg had not been changed. The appellate court stated that based on the facts, the trial judge was entitled to make this finding.
Although the Producer’s Agreement did allow for its termination on thirty days notice, this agreement did not deal with the payment of the vested commissions. Rather it was in the nature of a pension that had been previously agreed to.
Fiduciary Duty
A fiduciary relationship is a relationship wherein one person holds a position of trust, power or responsibility vis à vis the rights, property or interests of another person. For this reason, the fiduciary has an obligation to act in the best interest of the other party.
Manulife argued that it did not owe Reg a fiduciary duty and that Reg was not particularly vulnerable. The Appeal Court agreed with the trial judge’s finding that the duty arose in the context of Manulife’s role as a collector of Reg’s vested commissions. Therefore, by freezing Reg’s commission account Manulife breached its fiduciary duty.
Punitive Damages
The trial judge awarded punitive damages against Manulife because of what he referred to as Manulife’s reprehensible conduct in this affair, particularly its methodical and deliberate attempt to destroy Reg’s reputation.
The appellate court found that the trial judge “was alive to the considerations respecting the amount of punitive damages to be awarded” and as such they saw no reason to interfere with the amount.
Set-Off Defence and Counterclaim
In 1996 Manulife was named in a class action brought about by the sale of premium offset policies by its insurance agents, including Reg. Based on the settlement of the action, Manulife brought a counterclaim against Reg and argued for a set-off, claiming that Reg had engaged in misrepresentation in the sale of the policies. These arguments were dismissed at trial on the basis that the insurer was not only aware of Reg’s selling practices but that it was complicit in the selling techniques used.
The Court of Appeal found that Justice Power had correctly found the evidence of negligence on the part of Reg lacking.
Manulife will not seek leave to appeal to the Supreme Court of Canada and Reg can finally put this matter behind him.
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