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Class actions in Canada are on the rise

Class Action! The words hardly raise the spectre of asbestos, mould or historical abuse, but they are a risk that will not be legislated out of existence or solved by technology. In fact, class action litigation is still expanding in Ontario and many other provinces led by a more developed practice in the Province of Quebec.

After some celebrated false starts in the 1970s that demonstrated the inadequacy of the rudimentary rules of practice permitting class proceedings, the Province of Ontario followed the lead of the Province of Quebec and enacted the Ontario Class Proceedings Act, 1992, S.O. 1992, c.6, which came into force on January 1, 1993.

Simply, the legislation permits a representative plaintiff to ask the court to certify an action as a class proceeding, to appoint the plaintiff to represent the class and to appoint and instruct counsel and to permit the court to decide certain issues in dispute as common issues affecting the entire class. These common issues must be significant enough to move the litigation forward in a meaningful way. For example, common issues may investigate whether a defendant owes a duty of care to a class of plaintiffs or whether a defendant’s actions meet the prevailing standard of care (the Act also permits the certification of a class of defendants).

The class action is designed to provide access to justice for those that would not be able to seek redress because, for example, individual claims are small and the issues are complex and expensive to litigate, to provide judicial efficiency and to achieve behaviour modification.

The motions requesting certification orders from the court are hotly contested, often with legal fees of several hundred thousand dollars for each of the plaintiff and defendant. If a representative plaintiff is successful in its certification motion request, the action proceeds to the liability phase with the common issues determined at a common issues trial and the remaining issues, such as individual damages, assessed at a later phase of individual trials or assessments.

Recent Ontario Experience

The bulk of class action litigation in Ontario has been contested motions for certification. There have been fewer class action trials to judgment (this is not surprising given that the Ontario legislation came into force on January 1, 1993). Denials of certification motions usually terminate liability claims, whereas successful certification decisions often result in settlements which must be approved by the courts in what is akin to a fairness hearing.

However, in the last several years, Ontario courts have tried significant class actions to judgment with $36 million being awarded in Smith v. Inco, 2010 ONSC 3790 and $455 million being awarded in Jeffery v. London Life Insurance Co., 2010 ONSC 4938, with appeals expected. In Andersen v. St. Jude Medical, Inc. the trial has recently passed its one year anniversary and is expected to conclude this year.

These trials represent the next stage of development of the class action practice in Ontario. Insurers have developed an understanding of the cost of defending certification motions and the extraordinary costs that may be engaged in class action settlements such as notice campaigns and claims administration costs. Insurers are now able to assess the cost of defence of class action trials and the indemnity payments that may be required at judgment.

Class actions have also been responsible for the development of novel causes of action or remedies. For strategic considerations, plaintiffs have brought waiver of tort claims as an alternative to damage claims. These claims seek restitution of revenues or profits earned by a defendant on a block of business, such as on the sale of an allegedly defective product. Defence accounting costs to calculate the revenue or profit earned on the block of business can amount to several hundred thousand dollars or more. The viability or existence of the waiver of tort claim is still under legal review. At a minimum, the claim requires significant defence costs and has attracted insurer interest.

Many class actions are brought by an increasingly entrepreneurial plaintiff bar as a result of developments in the United States. For example, the prospect of large scale settlements in class actions or in multi-district litigation in the United States often results in the initiation of copycat class proceedings in Canada. Regulatory investigations in the United States or product recall in the United States or Europe has also led to the initiation of class proceedings in Canada.

Present and Future

The Canada Consumer Products Safety Act, S.C. 2010, c. 21 will come into force on June 20, 2011. The Act empowers the Minister of Health to order recalls of consumer products that are a danger to human health or safety and imposes certain incident reporting obligations on manufacturers, importers and sellers of consumer products. Experience in the United States indicates that more class actions will result if the Minister of Health is proactive and the legislation is actively enforced.

The range of actions brought as class actions before the courts is extremely wide, including recent claims for unpaid overtime, claims for property damage or bodily injury from pharmaceutical products, medical devices or consumer products, claims for economic losses including loss of value or claims for extended warranty coverage on consumer products, claims resulting from environmental issues or contamination, claims for price fixing under competition legislation, claims for abuse in schools and custodial institutions, and claims for improper fees and charges against insurers, financial institutions, colleges and universities.

Some of these claims can touch a long list of possible insurance coverages, including commercial general liability, environmental impairment and directors and officers policies (D&O).

Securities claims continue to attract considerable publicity. These claims generate significant exposure for directors and officers who then turn to their D&O policies for defence and indemnity.

As of the end of December 2010, there were 28 outstanding securities class actions in Canada. NERA Economic Consulting reports that these actions represent approximately $15.9 billion in outstanding claims, inclusive of punitive damage claims. Half of these 28 cases have been filed in the last two years.

The insurance industry itself has been an early target of class actions with mixed results. Class proceedings resulted in settlement of some vanishing premium cases in the life insurance industry. Insurers were successful in ultimately resisting certification of claims for deductibles under automobile policies. Other disputes considered the quality of repair parts replaced under automobile policies. Other actions sought certification of claims for overcharging of management fees on life policies, and most recently, a dispute concerning transactions involving PAR accounts of life insurers.

Insurance Implications

Of interest to insurers, many claims arise from a discrete event but often claims arise from a course of conduct over an extended period. Examples include products manufactured over seven or eight years, initially undetected but progressive property damage over many years, operation of a care facility for a decade or more, or environmental pollution over decades. Claims may be advanced by claimants in a province, across Canada or North America or throughout the world. These claims can implicate insurance policies over many years, multiple policies for the same year, as well as excess policies, and can raise territorial coverage issues and issues of jurisdiction of the courts.

Crisp management and direction of the defence, particularly at the important early stage of an action when decisions concerning the defence of a certification motion must be made, can be hampered by coverage issues preventing insurers from taking final positions on the engagement of cover or defence obligations. Coverage considerations can be particularly complex where multiple policies are implicated.

Insurance broker responsibilities can be complex and are beyond the scope of this brief article. However, insurers and brokers alike will be interested in developments affecting a company or industry, both in Canada and outside Canada, and in considering not only the risk of the importation of a copycat class action into Canada against a Canadian insured, but also the issues of available insurance coverage for what are often novel or innovative claims. Apart from any other coverage considerations, the potential magnitude of judgments or settlements in class action suits raise obvious issues as to the adequacy of available insurance limits, particularly in industries or sectors susceptible to class action activity, and brokers should clearly be addressing this potential risk in the advice and counsel provided to insureds.

Tim Buckley, Cheryl Woodin and Keith Batten are partners in the Toronto office of Borden Ladner Gervais LLP (BLG). For more information, visit blg.com

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Copyright 2011 Rogers Publishing Ltd. This article first appeared in the May 2011 edition of Canadian Insurance Top Broker magazine.

Copyright © 2017 Transcontinental Media G.P.
Transcontinental Media G.P.