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Case #036E – Guaranteed Funeral Deposits of Canada (Fraternal) v. Assurant Life of Canada
February 28, 2022

ONTARIO – Interpretation of Contracts — Rescission — Where a party misrepresented the nature and purpose of an amendment to an agreement, the other party was entitled to rescission, even if the misrepresentation was innocent. Where an important amendment to an agreement is being made, the party proposing it must ensure that knowledge of the amendment comes to the other side.

Guaranteed Funeral Deposits of Canada (Fraternal) Assurant Life of Canada
2022 ONSC 1027,  February 14, 2022
Ontario Superior Court, F.L. Myers J.

This case concerned a disagreement over the interpretation and validity of a contract between Guaranteed, a fraternal society that provides services to its member funeral homes, and Assurant, an insurance company that sells insurance policies to fund pre-need funerals and cemetery arrangements: para. 6.

Guaranteed and Assurant’s predecessor had done business since 2002 under an agreement whereby Guaranteed promoted Assurant’s life insurance policies in consideration of two forms of payment: 1) a commission on the policies it sold; and 2) an administrative fee of 0.125% on all of Assurant’s life policies at the end of each quarter (“admin. fee”), which would continue to be payable even after termination of the agreement. The agreement was renewed every five years: para. 8-9.

In 2017, Guaranteed’s new CEO reviewed existing contracts and noted that the admin fee clause was omitted from the 2012 renewal: paras. 14-15. Unbeknownst to the new CEO, in 2012, the parties had negotiated a new fixed administration fee of $75,000 per quarter, with a 3% per annum increase, but no post-termination payments: paras. 11-14.

The CEO asked a Guaranteed employee, C, to contact Assurant to ask them to repair the oversight by re-inserting the admin fee clause contained in the earlier agreements. C did as he was instructed. In his discussion with Assurant, C did not refer to the $75,000 per quarter admin fee in the 2012 agreement: paras. 16-19.

Trusting C’s representation that an admin fee payable after termination with a 3% annual increase had indeed been omitted, Assurant’s representative agreed, in October 2017, to amend the agreement by inserting the clause that Guaranteed represented had been omitted in error. para. 20.

In 2018, the agreement was terminated. Guaranteed claimed that the agreement, as amended in 2017, was valid and that it was entitled to the admin fee after the 2018 termination of the agreement: para. 24.

Guaranteed admitted the amending agreement created an economically absurd result, namely, a steep increase in admin fees year over year, while the face value of the insurance policies substantially decreased: paras. 28-29.  Guaranteed also admitted that it made an innocent misrepresentation to Assurant as to the erroneous omission of the admin fee clause from the 2012 agreement. However, Guaranteed claimed that, as the agreement had been amended, Assurant should not be excused from performance due to Assurant’s lack of due diligence: paras. 33-34.

Justice Myers held that Assurant was entitled to rescission of the contract on the basis of the misrepresentation, even if it was innocent.

The Court referred to the ONCA’s decision in Free Ukrainian Society (Toronto) Credit Union Ltd. v. Hnatkiw et al., 1964 CanLII 180 which adopted Lord Denning’s 1951 definition of a misrepresentation as:

…any behaviour, by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other party about the existence or extent of the exemption. If it conveys a false impression, that is enough. para. 40-41.

In the Free Ukrainian Society case, the Court of Appeal also held that:

Relief, however, will not be refused on this ground except upon clear proof that the party complaining possessed actual and complete knowledge of the true facts – actual, not constructive, complete, not fragmentary. The onus would rest upon the plaintiff to prove that the defendants had unequivocal notice of the truth.

The Court of Appeal quoted Lord Dunedin in Nocton v. Lord Ashburton, [1914] A.C. 932 at p. 962: “No one is entitled to make a statement which on the face of it conveys a false impression and then excuse himself on the ground that the person to whom he made it had available the means of correction.”

Justice Myers referred to Downtown King West v. Massey Ferguson Industries Ltd., 1996 CanLII 1232 (ON CA), which held that:

“It is not unreasonable … in modern commercial relations, to require the parties, where an important amendment is being made, to ensure that knowledge of such amendment comes to the other side. I do not mean that a party must overcome obtuseness in his opposite number, but he must at least give him a real opportunity to appreciate the change. And if the circumstances are such that the amendment might readily be missed, he should be particularly reluctant to assume such knowledge.”: para. 50.

On the issue of the validity of a contract which produces an absurd economic result, Justice Myers referred to Consolidated-Bathurst Export Ltd. c. Mutual Boiler & Machinery Insurance Co.1979 CanLII 10, where Estey J. (as he then was), held that “…literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted.”

However, Justice Myers declined to decide the case on the basis of the absurd result: paras. 57-59.

Relying on Deschenes v. Lalonde2020 ONCA 304, Justice Myers held that the requisite elements for rescission on the basis of an innocent misrepresentation are:

  1. There must a false or misleading representation of an existing fact.
  2. The misrepresentation must have actually induced Assurant to enter into an agreement.
  3. The misrepresentation must have related to a matter that a reasonable person would consider relevant to the decision to enter into the agreement.
  4. Assured acted promptly to disaffirm the contract.
  5. No third-party rights were acquired for value under the agreement. and
  6. It is possible to restore the parties to their pre-contractual positions: 60-61.

Justice Myers held that Assurant met the requisite elements for rescission of the amending agreement and was. Not liable for the additional admin fee.: para. 70. On that basis, the Court held that Assurant was entitled to rescind the 2017 amendment to the agreement.

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Arbitration & Business Cases is a blog created by Igor Ellyn and Robin Dodokin in September 2021. Kathryn Manning joined us in October 2022. Our intention is to provide timely, concise summaries and commentary of Ontario and Canadian case law on arbitration and business matters.


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Robin Dodokin,
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