Republished with permission from the Insurance Brokers Association of Alberta’s magazine The Alberta Broker (April/May 2024).
In Gagne v Harrison,[1] the plaintiff sued a life insurer (among others), alleging that the insurer caused them harm by creating an unsuitable financial retirement plan that included the use of life insurance contracts. In its defence, the insurer argued that insurers, unlike insurance brokers, do not have a duty to determine what products an insured needs. When the insurer persuaded the initial judge to dismiss the plaintiff’s claim for that reason, the plaintiff brought the issue to the Ontario Court of Appeal. The Court of Appeal was then asked: is it truly ‘settled law’ that an insurer does not have a duty to determine an insured’s requirements?
The Initial Judge’s Decision
The insurer brought the matter to the initial judge on the basis that the plaintiff’s lawsuit failed to disclose a reasonable cause of action against the insurer. Causes of action are essentially recognized types of claims (e.g. breach of contract, negligence, etc.), and each cause of action is made up of elements that a plaintiff will have to establish in order to be successful in their lawsuit. As a procedural matter, a lawsuit can be dismissed if a plaintiff does not allege a reasonable cause of action.
Here, the insurer argued that there was no duty on an insurer to know an insured’s coverage requirements and that, therefore, there was no reasonable cause of action and the lawsuit had to be dismissed. The judge was persuaded that “the litigation was really about bad advice, not a bad product or the faulty delivery of insurance products” and dismissed the lawsuit against the insurer.[2] The plaintiff appealed.
Reversal at the Court of Appeal
The Ontario Court of Appeal allowed the plaintiff’s appeal. Although the Court of Appeal agreed with the judge that the plaintiff’s lawsuit was defective because the plaintiff’s statement of claim did not articulate all of the necessary elements of the various causes of actions against the insurer, the Court disagreed that “settled principles of law distinguishing between the obligations of insurers and brokers and agents” dictated that there was no cause of action against the insurer.[3]
That is, the Court did not agree “that there is any general principle of law that an insurer will never owe a duty to an insured with respect to the suitability of an insurance product”.[4] Although there were cases where an insurer’s duty to an insured did not exist on the particular facts, the initial judge incorrectly took this to mean that the duty could never exist.
In this case, since the judge had found that the duty could never exist, the plaintiff’s lawsuit against the insurer was deemed to be inherently defective and was dismissed. The Court of Appeal reiterated that the court had only been asked to make sure that the plaintiff’s lawsuit against the insurer met the minimum procedural requirements of an adequate statement of claim, not to evaluate the plaintiff’s allegations on the merits.
The Court of Appeal agreed that the plaintiff’s statement of claim was inadequate; however, the plaintiff could still remedy this deficiency. The Court stated: “Leave to amend a statement of claim should be denied only in the clearest of cases, when it is plain and obvious there is no tenable cause of action, the proposed pleading is scandalous or vexatious or there is non-compensable prejudice to the defendants”.[5] The Court of Appeal found that the plaintiff’s statement of claim contained tenable causes of action against the insurer, although their essential elements had not been properly set out; for that reason, the Court of Appeal granted the plaintiff permission to amend their pleadings.
The Take-Away
The initial judge’s decision in Gagne v Harrison would have meaningfully narrowed the scope of insurer’s potential liability to insureds. However, as the Ontario Court of Appeal clarified, there is no categorical rule that insurers cannot be liable to insureds under a duty to determine the insured’s requirements. The exact details of the duty may still be the subject of argument and may turn on specific facts, but the Ontario Court of Appeal has stated clearly that the duty cannot be dismissed out of hand.
[1] 2024 ONCA 82.
[2] Ibid at para 3.
[3] Ibid at para 8.
[4] Ibid at para 9.
[5] Ibid at para 13.
