INTRODUCTION

1. Who is entitled to the value created by a group insurance policy in a mutual insurance company: the employees or an employer? To answer this question, significant issues of public importance about the nature of compensation for work and the role of an employer in obtaining and maintaining group insurance policies must be addressed.

2. As a result of the demutualization of the Mutual Life Assurance Company of Canada (changing ownership structure from a mutual to a stock company), policyholders were entitled to receive shares in the new stock company, Clarica Life Insurance Company, or the cash value of those shares. The Employer in this case, pursuant to obligations in a collective agreement, had purchased a group insurance policy providing life and disability coverage to employees. The premiums which purchased the policy and generated the value were paid for by both the employees and the Employer. The Court of Queen’s Bench held that the employees were entitled to the total amount of the value attributable to their employment, since the premiums paid for the policy were all funded by the employees, as it formed part of their negotiated compensation package. The Court of Appeal varied the decision by holding that the employees were only entitled to a proportionate share of the value based on the amount they directly paid for the premiums, and the Employer would retain the balance.

PART I – STATEMENT OF FACTS
A. Specific facts

3. The Applicant, (“Association”) is a corporation established by s. 37 of the Technical Institutes Act, R.S.A. 2000, c. T-3 to represent academic staff members at the Respondent (“Employer”). The Employer is a technical institute established by s. 2 of the Technical Institutes Act and is a post-secondary technical education institute.

4. The terms and conditions of employment of members of the Association are pursuant to a series of continuous collective agreements (“Collective Agreements”) between the Association and the Employer. The Collective Agreements contain the obligation on the Employer to provide and administer a disability and life insurance policy, and addresses how the premiums for the policy are to be paid (Agreed Facts, pages 165, 166, 170; Collective Agreement April 1, 1982 –June 30, 1983, pages 103-105; Collective Agreement 1999- 2001, sections 27, 28, 32, 34, pages 131-134).

5. Pursuant to its ongoing contractual obligations in the Collective Agreements, the Employer obtained a group life and disability insurance policy #19380 (the "Policy") from The Mutual Life Assurance Company of Canada ("Mutual Life") on behalf of its employees who are members of the Association. The Policy has been reissued from time to time, but remained in effect throughout (Agreed Facts, para 5, page 165-166, and 106-122).

6. The Policy gives certain rights to and imposes certain obligations on the policyholder, the insured under the contract, and certain rights ensure to the Policy itself.

i) The policyholder
7. The policyholder is identified as the Employer. The policyholder is entitled to one vote at the annual meeting. The policyholder is also responsible for the administration of the Policy according to the instructions provided by Mutual Life. The policyholder can terminate the Policy with written notice (pages 108, 113, 114). The policyholder receives no insurance coverage for itself.

ii) The insured
8. The Policy states that the agreement between the Employer and Mutual Life is for Mutual Life to “insure certain persons according to the provisions of this policy” (page 108).

9. The insurance coverage is for the employees including management, academic and non-academic staff, and opted-out and excluded employees. Insurance coverage is not automatically extended to employees. It only becomes available once employees meet the eligibility criteria. The Policy provides for the termination of insurance coverage of individual employees, but this does not impact on the continuation of the Policy (pages 109, 111, 115-117).

10. When the insurance coverage of individual employees terminates, they have the option of converting the group life insurance policy coverage to an individual policy without submitting evidence of insurability. The Policy acknowledges that “the individual policy will be in exchange for all benefits terminated under this provision” (page 120). When a member is in receipt of long-term disability benefits, the Policy calls for a waiver of his or her premiums (page 122).

iii) The Policy
11. The Policy participates in any surplus distribution declared by Mutual Life. The Policy remains in force so long as the premiums are paid. The Policy terminates automatically if premiums are not paid or if the policyholder goes into receivership or bankruptcy. When the Policy terminates, the insurance coverage for employees is terminated (page 113-114).

iv) The premiums
12. The Policy requires that premiums be paid monthly, in advance, to maintain the insurance coverage. The policyholder is responsible for paying the premiums. The Policy is silent about who will fund the premiums - the policyholder or the employees. (page 108, 113).

13. The premium payment can be traced back to individual employees by the Employer.

v) Funding of premiums
14. The terms of benefits and allocation of premiums has routinely been the subject of collective bargaining between the Association and the Employer as one component of the overall compensation paid to Association members for their work (pages 171, 149-154). A history of the annual relative premium contributions as between the Employer and Association members from 1988 – 1997 (the relevant time period for this demutualization) shows that premiums were paid for the Policy in four ways (see Agreed Facts, pages 170-171, and Exhibits “O” pages 123-124 and “P” page 125):

Life insurance part of the Policy:

• By the Employer for the first $25,000 life insurance coverage (Basic Life), but this amount is treated as a taxable benefit, and therefore considered income in the hands of Association members (1999-2001 Collective Agreement, s. 32, page 134; Sample pay stub and T4 of Des Chorney, pages 155-158; Ex. “O”, p. 123);

• By Association members by direct deduction from their pay cheques for life insurance coverage in excess of $25,000 and any optional or dependent coverage (1999-2001Collective Agreement, s. 32, page 134; Ex. “O” p. 124);

Disability insurance part of the Policy:

• By the Employer for the long term disability policy (1999-2001 Collective Agreement s. 28, page 132; Ex. “O” p. 123) subject to:

• By the Association members indirectly because the entire employment insurance rebate is treated as the employees’ contributions to the long term disability plan (1999-2001 Collective Agreement, sections 34 and 28.03, pages 134, 132, and Ex. “P” p. 125).

(Appendix “A” to this memorandum illustrates the above)

vi) The value generated
15. The premiums for the Policy were paid directly by members of the Association or by the Employer on behalf of Association members. Those premiums contributed to the capital of Mutual Life and thereby contributed to the value of the Policy. The value is separate from payment of insurance benefits made as a result of a claim, which is a “coverage” issue. In this case, the value in the Policy was calculated based on a formula using the premium contribution history of each policy from 1988-1997 (Special guide for policyholders, pages 135-148).

16. As a result of demutualization, the Policy had a crystallized value. The Employer, as the named policyholder, was issued 62,467 shares (valued at $20.50 per share) in the new demutualized insurance company named Clarica Life Insurance Company (“Clarica”) for a total of $1,280,573.00. Of the 62,467 shares issued, 40,284.771 (19,515.145 shares for life insurance and 20,769.572 for long term disability insurance) or 65%, $825,837.81 (the “Proceeds”), relate to premiums paid respecting members of the Association (Agreed Facts, p. 168-169, and Ex. “J” p. 159-163; see Appendix “A”)

B. Contextual facts

i) What is a mutual insurance company?
17. The two main types of corporate governance in insurance companies are stock and mutual. In the former shareholders are the owners; in the latter policyholders are the owners. Mutual insurance companies are “pooling” arrangements in which a number of individuals put premiums into a common pool to cover future claims. Usually an arrangement, called an “assessment”, is established for further payment if premiums are insufficient to meet claims. A portion of the premium called a “dividend” may be returned if premiums exceed claims requirements.

- C. Brown, Insurance Law in Canada, Vol.1 (Toronto: Carswell, 2001, looseleaf) at 2-3 (TAB 2)

18. In mutual insurance, the policies have two purposes. First, a policy provides insurance coverage i.e. the life or disability policy. Second, a policy represents an ownership interest in the company. It is this second interest at issue:

The principle which lies at the foundation of mutual insurance and gives it its name, is mutuality: in other words, the intervention of each person insured in the management of the affairs of the company, and the participation of each member in the profits and losses of the business, in proportion to his interest.

- May, The Law of Insurance, 4^th ed. (Boston: Little Brown, 1900) at para. 548, as cited in B. Crawford, “The Nature, Source and Extent of Participation Rights in Mutual Insurance Companies” (1995) 25 Canadian Business Law Journal 337 at 341 (TAB 4)

19. The purpose of a mutual company is to provide insurance to its members, without the profit motive of a stock insurance company. Theoretically, the purpose of premiums in a mutual company is to cover potential losses, and build up the appropriate insurance reserves. Surplus funds which accumulate because of over-estimating the costs of premiums, or favourable investments, could be returned to policyholders by reducing future premiums or by paying a dividend. The dividends are “strictly speaking, not profits as in the case of an ordinary corporation, but really constitute a return to the policyholder of the amount he has been overcharged for his insurance”.

- B. Crawford, “The Nature, Source and Extent of Participation Rights in Mutual Insurance Companies” (1995) 25 Canadian Business Law Journal 337 at 341 – 343, and footnote 21 quoting from Kreider, “Who Owns the Mutuals?” (1972) 41 U. Cin. L. Rev. 275 (TAB 4)

ii) What is demutualization?
20. Demutualization describes a process whereby a mutual life insurance company converts into a stock company, thereby permitting it to access capital markets so as to facilitate expansion and growth. The Government of Canada put in place a legal framework in the 1990’s to ease the demutualization of both small and large insurance companies (Agreed Facts, para 8, page 166 and 126-127).

21. The issue that arises in demutualization is how to account to policyholders for the accumulated value in the company, that is, the “accumulated divisible, but unallocated surplus—the residual profits from its operations”. In calculating that value, a company may take into account any or all of the following: a policy’s contribution to surplus, policy reserves, cash values, amounts of policy coverage, and the duration of the policy. Demutualization has no impact on the insurance coverage provided by a policy.

- Mutual Company (Life Insurance) Conversion Regulations, SOR/99-128, s. 4(2)

- B. Crawford and J. Jason, “Fair and Equitable Treatment of Participating Policyholders Upon Demutualization” (1996) 11 Banking and Finance Law Review 1 at 10 (TAB 3)

22. United States courts have recognized that an insurance company holds the accumulated profits in a quasi-trust for its members. Thus the ownership interest must be returned to the policyholders before changing the ownership structure and the value of the company.

- B. Crawford and J. Jason, “Fair and Equitable Treatment of Participating Policyholders Upon Demutualization” (1996) 11 Banking and Finance Law Review 1 at 10 (TAB 3)

23. In Canada five major insurance companies have demutualized and in that process approximately $20 billion dollars have been transferred to eligible policyholders (in cash or shares). A portion of these are group insurance contracts such as the case here. Another mutual insurance company, Standard Life, has announced its intention to demutualize.

- Affidavit of John Melvin Norton, pages 6-9

C. History of proceedings
24. The Association successfully applied to the Court of Queen’s Bench based on a Statement of Agreed Facts and documentary exhibits for a declaration that the Association or its members have an entitlement to the demutualization Proceeds (Reasons for Judgment at pages 31-54, Order at pages 65-69).

25. The Chambers Judge declared that the Association members have an interest in all of the demutualization Proceeds ($825,837.81) attributable to premiums paid directly by members or indirectly on behalf of members by the Employer. He came to this conclusion by finding that:

• The Employer was acting as an agent, or deemed agent, for members of the Association in paying the premiums for the Policy (para 66, 72-74).

• Alternatively, the Employer owed members of the Association a fiduciary obligation in that the Employer had relinquished its own self-interest and agreed to act on behalf of members of the Association with respect to the administration of the Policy (para 66, 78-80, 83).

• The premiums paid for the Policy were to be considered part of the compensation paid to employees in exchange for their work (par 30-32, 72).

• The Employer was in breach of its fiduciary obligations to remit the Proceeds claimed to members of the Association and therefore a constructive trust was imposed on $825,837.81, with distribution to be determined upon further submissions (para 82, 83).

26. Mr. Justice Côté writing for the Court of Appeal (pages 70-77):

• confirmed the Chambers Judge’s declaration that the members of the Association had an interest in the demutualization Proceeds. (para 1-8); and

• remitted the matter back to the Chambers Justice for a determination of the quantum of the interest in the Proceeds (the size of the constructive trust) because the Court of Appeal held that the employees’ interest could only relate to those premiums which were paid for directly by the members of the Association, and did not include any payment of premiums made ‘directly’ by the Employer (para 11, 15).

PART II – QUESTIONS IN ISSUE
27. This case raises the following issues of public importance:

A. What is compensation for work?

i) Do employer paid benefits form part of an employee’s compensation?

ii) What is the impact of the Court of Appeal’s decision on collective bargaining?

iii) There are irreconcilable decisions across Canada

B. What is the group insurance policy and what is the role of an employer in obtaining and maintaining such a policy:

i) Does an employer have a legal interest in a group insurance policy?

ii) Is the employer acting as an agent or in some other fiduciary capacity?

C. The Court of Appeal decision adds to the uncertainty in the jurisprudence about the status of benefits in the non-unionized employment context.



PART III – STATEMENT OF ARGUMENT

A. What is compensation for work?

i) Do employer paid benefits form part of an employee’s compensation?
28. The implication of the Court of Appeal decision is that employment compensation other than wages, will not be recognized as part of the remuneration package. According to the Court of Appeal when an employer ‘pays’ the premiums for an employee’s insurance coverage, it is a gratuitous payment on the part of the employer and is not taken into account in valuing an employee’s compensation. It makes no difference that the employer pays the premiums pursuant to an obligation in a collective agreement. Such conclusions will have wide ranging ramifications in labour law and labour relations.

29. This Court has addressed this issue in the context of collateral benefits and double recovery in a tort situation: Cunnigham v. Wheeler [1994] 1 S.C.R. 359 (TAB 18). The majority of the Court held that when an individual had received disability benefits pursuant to a group insurance policy through his or her workplace, it was possible to conclude that the individual had “paid” for these benefits (pages 403-406). There had to be evidence of consideration given up by the employee in return for the benefit, and the method or means of payment of consideration is not determinative (pages 407-408). Three different cases were before the court. In the first, Cunningham v. Wheeler, the Court held that there was evidence of a contribution to the plan by the employee through the collective agreement and the trade-off of a reduced hourly wage (page 408). In Cooper v. Miller the employees paid 30% of the premiums and gave up their share of the employment insurance rebate, and the employer paid the balance. Therefore, the total premiums paid for the insurance coverage was part of the total wage package. In Shanks v. McNee the Court found that it was possible to infer there would have been trade-offs made by employees during collective bargaining in exchange for the benefits received and that the cost of benefits forms part of the compensation of employees (page 414). The analysis, the Court held, would also apply in the non-unionized context where there was evidence that the “employer takes the cost of benefits into account in determining wages” (page 408).

30. This analysis on deductibility of collateral benefits has been applied by the Ontario Court of Appeal to hold that disability benefits received by an employee are deductible from wrongful dismissal damages. This analysis has also led the Alberta Court of Queen’s Bench to take judicial notice that a group insurance policy providing disability coverage obtained in a unionized workplace is part of the compensation paid to employees.

- Sills v. Children’s Aid Society (2001), 198 D.L.R. (4th) 485 (Ont C.A.)

- Howes v. Rousta, [2002] A.J. No. 1484 (Q.B.) at para 85-86

31. In the context of pension surplus cases, other Courts of Appeal have commented that pensions form part of the compensation offered to employees in exchange for their work.

- Chateauneuf v. TSCO of Canada Ltd. (1995), 124 D.L.R. (4^th) 308 at 362-63 (Que. C.A.), per LeBel J.A. (as he then was); leave to appeal to S.C.C. denied (1995), 124 D.L.R. (4^th) vi (TAB 17)

- Bathgate v. National Hockey League Pension Society (1992) 44 C.C.E.L. 1 at paras. 165-166 (Ont. G.D.); aff’d (1994), 110 D.L.R. (4^th) 609 (Ont. C.A.); leave to appeal to S.C.C. denied [1994] S.C.C.A. No. 170 (TAB 15)

32. In the labour relations context, it is well accepted that benefits, or indirect remuneration, are an important part of an employee’s compensation. See for instance:

- R.P. Gagnon, L. LeBel, P. Verge, Droit du Travail (Sainte-Foy: Les Presses de L’Université Laval, 1991) at 233 (TAB 6)

- R. Koskie et al., Employee Benefits in Canada 3d (Brookfield, Wisconsin: International Foundation of Employee Benefits Plans Inc., 2001) at pp. 1, 3 (TAB 11)

-S. Renaud, Unions, Wages and Total Compensation in Canada: An Empirical Study, (1998) 53 No. 4 Industrial Relations 710 at 716, 719,725 (TAB 13)

-M. Gilbert, L’Assurance Collective en Milieu de Travail (Quebec: Les Editions Yvon Blais Inc., 1998) at 89-90, 115-118 (TAB 7)

-H. Zoeteweij, Indirect Remuneration, An International Overview (Geneva: International Labour Organization, 1986) at 24-27, 65-68 (TAB 14)

33. This analysis raises two issues of public significance in the labour relations context:

• When the employer is fulfilling a contractual obligation under a collective agreement to employees by paying for some or all of the premiums for life or disability insurance, are the premiums paid for by the employer to be considered part of the overall compensation paid to employees?

• What conclusion is to be drawn from this type of analysis where the premiums are purchasing not only insurance coverage (Cunningham v. Wheeler situation) but when part of the premium generates an ascertainable value from the insurance policy (demutualization context)?

ii) What is the impact of the Court of Appeal’s decision on collective bargaining?
34. Benefits other than wages often, called “fringe benefits”, have been an important subject of collective bargaining on the basis that they do constitute part of an employee’s compensation. The decision of the Court of Appeal undermines this basic premise.

35. The process of ‘total compensation bargaining’ has been ably described by Professor Adell in “Pension Plan Surpluses and the Law: Finding a Path for Reform” cited by Mr. Justice Adams in Bathgate :

What is still the clearest available account of the process of union-employers bargaining over pensions was offered in 1964 by an American scholar, Professor Merton C. Berstein:

...

The parties bargain on all labour compensation elements in terms of the total cost of the package which is divided among direct money wages and several fringe items. Considerations of equity and strategy shape the parties’ demands, and they agree upon division of the package among the various elements. One seasoned negotiator [Arthur Goldberg, General Counsel of the CIO at the time] described the process in this fashion:

‘The union and management come to the bargaining table with some appraisal of how much money there is in the “kitty” for an [page 393] increase. The appraisals are, naturally, different. But it is the total cost of improvements which provides the framework within which the union and management bargain. If the 5 cents, for example, does not go into a health fund, it can go into a wage increase or to extra holidays or double time for overtime on Saturdays. That is what collective bargaining is all about.’

- Bathgate v. National Hockey League Pension Society (1992) 44 C.C.E.L. 2 at paras. 165-166 (Ont. G.D.); aff’d (1994), 110 D.L.R. (4^th) 609 (Ont. C.A.); leave to appeal to S.C.C. denied [1994] S.C.C.A. No. 170 (TAB 15)

36. Each side chooses priorities and how best to advance them. Trade-offs regarding compensation will be made i.e. increased wages for lower benefits, or increased wages for permanent employees and no benefits for temporary employees. An example is the submission made by the Employer to an interest arbitration to this effect (Agreed Facts, para 33, page 177 and 149-154).

37. During collective bargaining, arrangements are also made in light of the statutory framework, i.e. income tax rules. These arrangements are only made as part of an overall bargain where one side will have given something up in exchange for something else relating to benefits or wages. Another example is arrangements made in relation to the employment insurance reduction which clearly belongs to employees. Beaver v. Metropolitan Authority (1990), 32 C.C.E.L. 215 (N.S.C.T.A.); (s. 34 1999-2001 Collective Agreements, p. 134).

38. The analysis of the Court of Appeal has the potential to undermine the way collective bargaining is understood and/or undertaken. For instance, if employee benefits are not tied to compensation, why do employers insist and employees accept lower wage packages? What does this mean for the conduct of future negotiations? Clarification of the meaning of compensation for work and the legal role of employers and employees under group insurance will assist in providing the ground rules for collective bargaining.

- Affidavit of Terrance Sway, pages 23-26

iii) There are irreconcilable decisions across Canada.
39. In the context of demutualization, there have been a number of decisions with conflicting results. Two decisions have found that the premiums paid by the employer on behalf of employees for the insurance policy which generated value, were in the nature of compensation to employees, and therefore the value generated from the payment of the premiums belonged to the employees.

- NASA v. NAIT, reasons by Chambers Judge, pp. 31-54, Order, pp. 65-69

- Métro Richelieu 2000 Inc. v. L’union international des travailleurs et travailleuses de l’alimentation et du commerce, section locale 1991-P (L’Honorable Lawrence Poitras) October 22, 2002; aff’d [2003] J.Q. no. 12763 (TABS 22, 23)

40. Four decisions have found that where the payment for premiums for a group policy are made by an employer, the employees are not entitled to any claim on the value generated by those premiums.

- NASA v. NAIT, Reasons of Court of Appeal, pp. 70-77

- International Union of Operating Engineers, Local 894 v. Smurfit-Stone Container (Canada) Inc. (Brian Bruce) December 5, 2002; aff’d [2004] N.B.J. No. 57 (being appealed to Court of Appeal) (TABS 20, 21)

- Université de Montréal v. Syndicat des Employé-e-s de l’Université de Montréal (Louis B. Courtemanche) May 27, 2003 (TAB 24)

41. In Métro Richelieu Arbitrator Poitras analyzed the issue of entitlement to demutualization proceeds, from the starting point of why the group insurance policy was obtained and who was intended to benefit from the policy. It did not matter, in his analysis, whether the proceeds from demutualization derived from the premium payments. The fundamental question to be asked is who funds the cost of group insurance. The cost of group insurance policies is part of the total compensation package negotiated by employees in exchange for their labour. Therefore, he concluded, the employees should benefit from the advantages, even if unforeseen, flowing from this term of employment. In coming to this conclusion, Arbitrator Poitras relied upon inter alia, Cunningham v. Wheeler, the reasons of the Chambers Judge in this case, and a number of learned articles and texts.

42. The reasons of the Chambers Judge below applied similar reasoning.

43. In contrast, the analysis in Université de Montreal, and in Smurfit-Stone, as confirmed on judicial review, and implicitly the analysis by the Court of Appeal in this case, concludes, inter alia:

- Employees are only entitled to the portion of the value of the policy to which the employee-paid contributions contributed.

- Employer-paid premiums while a labour cost are not part of the compensation paid to employees.

- Employees are only entitled to the insurance coverage provided by a policy purchased by the Employer pursuant to contractual obligations. This entitlement does not ground a claim to any value generated by the policy. The employer fulfilled its contractual obligations by providing the insurance coverage, and therefore it is free to retain any cash or shares arising from demutualization (see particularly Smurfit-Stone)

44. The conflicting approaches demonstrate the uncertainty in the law in this novel factual situation. The decision in Smurfit-Stone is proceeding to the Court of Appeal in New Brunswick. There are outstanding claims affecting employers and employees in Alberta, British Columbia and Ontario. The issue will be specifically be raised again when another mutual life insurance company, Standard Life demutualizes, as it has recently announced.

-Affidavit of Terrance Sway, page 24

-Affidavit of Ed Logue, pages 27-28

-Affidavit of John Melvin Norton, pages 8-9

45. The uncertainty in the law is also demonstrated by the different approaches used by the demutualized insurance companies to potential claims by employees, or unions on their behalf. Mutual Life/Clarica explicitly chose to ignore any equitable claims that might be made to shares, or their cash value, and specifically only dealt with the named policyholder in all of its policies. In contrast Sun Life proactively contacted its group policyholders in a series of correspondences which warned that group policyholders may gave fiduciary obligations to other parties, and went so far as to warn group policyholders that it had been contacted by several unions and that in some of those cases, Sun Life was withholding distribution of shares or cash in lieu thereof, until entitlement was resolved.

-Affidavit of John Melvin Norton, pages 9-22

46. The Reasons of the Court of Appeal also reveal a difference of approaches outside of demutualization. In the pension surplus cases, the Quebec and Ontario Courts of Appeal, have commented that employer contributions to a pension plan do form part of the compensation paid to employees. Clearly, the implication of the Reasons of the Court of Appeal in this case suggest a different approach would result in Alberta.

- Chateauneuf v. TSCO of Canada Ltd. (1995), 124 D.L.R. (4^th) 308 at 362-63 (Que. C.A.), per LeBel J.A. (as he then was); leave to appeal to S.C.C. denied (1995) 124 D.L.R. (4^th) vi (TAB 17)

- Bathgate v. National Hockey League Pension Society (1992), 44 C.C.E.L. 2 at paras. 165-166 (Ont. G.D.); aff’d (1994), 110 D.L.R. (4^th) 609 (Ont. C.A.); leave to appeal to S.C.C. denied [1994] S.C.C.A. No. 170 (TAB 15)

- see also Ontario Judges’ Assn. v. Ontario (Management Board) (2003) 233 D.L.R. (4^th) 711 (Ont. C.A.) at para 36-40, 62, 96, 108-110.

47. In light of the number of demutualizations that have occurred and are occurring, the fundamental concept of what is compensation for work, the value at stake, and the conflicting jurisprudence, an analytical roadmap is needed from this Honourable Court.

B. What is a group insurance policy and what is the role of the employer in obtaining and maintaining such a policy?
i) Does an employer have a legal interest in a group insurance policy?
48. The issues raised here, go beyond the demutualization context, however, and raises the fundamental issue of what is the nature of group insurance generally and does an employer have any legally ascertainable interest in a group insurance policy? The Chambers Judge found that the Employer had no self-interest under the group insurance policy, rather only the employees derived an advantage (insurance coverage). The Court of Appeal did not explicitly address this issue but implicitly must have been of a different view. There are legal texts and some U.S. authority on this issue which suggest that under a group insurance policy the employer receive no benefit. Does this analysis also apply to the ownership in the value generated by a group insurance policy? This Court has yet to address these issues in this context.

49. Theoretically, an employer who wishes to provide life and disability insurance to his employees could ask an insurance company to issue individual contracts of insurance to each of his or her employees. Such a process could be cumbersome for all the parties involved as it would require individualized applications for insurance and individualized payment arrangements. Group insurance addresses this situation.

50. According to the leading U.S. case, employers are functionaries and it is the employees who are in the position of the real party to the group insurance contract:

...[Group insurance] differs significantly from ordinary personal insurance. The policy is issued in the name of a group, usually an employer, which acts as a functionary in the collection and payment of premiums and in performing related duties. Most policies, such as that with which we are here concerned, require an employee to pay a portion of the premium, which the employer deducts from wages; the remainder is paid by the employer. The premiums are considerably lower than rates on policies issued on an individual basis. The insurer seldom requires a medical examination for the issuance of a policy to a member of a group, since the basic assumption is that those persons who are sufficiently healthy to be employed represent an average cross section of the population in terms of physical well being.

The employer, the employee, and the insurer enjoy distinct advantages from this form of insurance. The employer, at a comparatively small cost, is enabled to reduce labor turnover and to enhance the loyalty of its employees and their families. The employee benefits by obtaining insurance at modest cost, without the necessity of a physical examination. Group insurance is profitable to the insurer because it sells policies on a mass basis at negligible per capita sales cost. Moreover, such policies show a low rate of lapse and the administration cost is minimal. (4 Encyclopedia of the Social Sciences, p. 185.)

...

Although the employer is the titular insured, the insurance is actually related to the life and health of the employee. Indeed, in several respects the employee is in the position of a real party to the master contract.

- Elfstrom v. New York Life Insurance Co., 67 Cal. 2d 503 (1967) at paras. 16-17, 29 (Calif. S.C.) (TAB 19)

- R. Hayles, Disability Insurance: Canadian Law and Business Practice (Toronto: Carswell, 1998) at 93 (TAB 9)

51. The leading texts suggest that under group insurance, the policyholder shall not benefit directly from the insurance. The group policy is a contract between the employer and the insurance company for the benefit of the insured employees and their beneficiaries.

- D.W. Gregg, Group Life Insurance (Homewood, Ill.: Richard D. Irwin, Inc., 1957) at 66-67 (TAB 8)

- D. Norwood, Norwood on Life Insurance Law in Canada, 2^nd ed. (Toronto: Carswell, 1993) at 141 (TAB 12)

52. The questions raised include: Is the above analysis correct? Does this analysis apply to any claims on the value generated by the Policy? Does it make any difference who is paying the premiums?

ii) Is the employer acting as an agent or in some other fiduciary capacity?
53. Another question raised is whether there is an agency or some other fiduciary obligation owed between an employer and its employees when the employer procures and/or maintains a group insurance policy. This Court has not explicitly addressed this issue. While the facts of any case will be key, the absence of any guiding legal principles has led to inconsistent decisions about whether an employer is the agent of the insurance company or the agent of employees in a group insurance contract.

- International Brotherhood of Teamsters et al. v. Taylor-Read Enterprises et al. (1980), 19 B.C.L.R. 351 (S.C.) – employer agent of insurer

- London Life Insurance v. Baker (1987), 34 D.L.R. (4^th) 340 (N.S.S.C.A.D.) – employer agent of insurer

- O’Neill v. Canadian International Paper Co., [1973] S.C.R. 802 – employer intermediary of employees

- Association de Taxis Lasalle v. Blais, [1971] S.C.R. 643 at 3 (QL version) (applied in Clouthier c. Prevoyants du Canada (Les) [1983] C.S. 903) – taxi association was mandatory of it members

- R. Hayles, “Group Insurance: Agency Status of the Master Policyholder” (1992) 3 C.I.L.R. 305 at 308, 319 (TAB 10)

54. United States case law recognizes that in some specific contexts an employer acts as the agent for its employees in obtaining group insurance. The Supreme Court of the United States came to this conclusion:

When procuring the policy, obtaining applications of employees, taking payroll deduction orders, reporting changes in the insured group, paying premiums and generally in doing whatever may serve to obtain and keep the insurance in force, employers act not as agents of the insurer but for their employees or for themselves. [Emphasis added.]

- Boseman v. Connecticut Gen. Life Ins. Co., 301 U.S. 196 (1937) at para. 22 (TAB 16)

55. Boseman, remains the last word on this issue by the United States Supreme Court. While some lower courts have distinguished the case, it continues to be followed, i.e. Hayes v. Lincoln General Insurance Co., 899 F. 2d. 684, at para. 15 (7^th Circ 1990).

C. The Court of Appeal decision adds to the uncertainty in the jurisprudence about the status of benefits in the non-unionized employment context.
56. In a wrongful dismissal context in Ontario and Alberta, damages include salary and compensation for the cost of lost employee benefits during the notice period.

- Davidson v. Allelix Inc. (1991), 86 D.L.R. (4^th) 542 (Ont. C.A.) at 548-549

- Christianson v. North Hill News Inc. (1993), 106 D.L.R. (4^th) 747 (Alta. C.A.) at 753-754

57. Other jurisdictions in Canada take a different approach, and only award damages for lost employee benefits during the notice period if the plaintiff can prove a loss, i.e. that they have incurred the cost of purchasing replacement benefits. Thus benefits are treated as special damages rather than as general damages.

- G. England and R. Wood, Employment Law in Canada 3^rd ed. (Toronto: Butterworths, looseleaf) at para 16.40-16.41 (TAB 5)

- S. Ball, Canadian Employment Law (Aurora: Canada Law Book Inc., looseleaf), at topic 22:20.2 (TAB 1)

- Peddle v. Rowan Cos. (1993), 47 C.C.E.L. 48 (N.S.S.C.) at 52-53

- Ward v. Royal Trust Corp of Canada (1993), C.C.E.L. (2d) 153 (B.C.S.C.) at 159

- Cormier v. Atlantic Sleep Product (1992), 39 C.C.E.L. 233 (N.B.Q.B.) at 236-237

- Peterson v. Dominion Bridge – (Saskatchewan) (1994), 7 C.C.E.L. (2d) 114 (Sask. Q.B.) at 117

58. These cases signal a fundamental conceptual difference across the country in how employee benefits are understood in the non-unionized context. Are the premiums the employer pays for these employee benefits such as group life and disability insurance a gratuitous payment made by the employer? Or do they form part of an individual employment contract even if they are not explicitly bargained for? In answering these questions, it is necessary to return to the question of what is the nature of group insurance and whom does it benefit. Group insurance can be a powerful recruitment and retention tool, just as offering a competitive salary is such a tool. But both a salary and the offer to pay premiums for a group life and disability policy are only offered by an employer in exchange for work. This case may address this significant conceptual schism about the nature of employee benefits in wrongful dismissal law.

PART IV – SUBMISSION CONCERNING COSTS
59. Pursuant to an agreement, the Applicant seeks no costs for this application.

PART V – ORDER REQUESTED
60. The Applicant requests that this Court grant leave to appeal to this Court the judgment of the Court of Appeal of Alberta that the Association members are not entitled to the portion of the Proceeds attributable to premiums ‘paid’ by the Employer.

ALL OF WHICH IS RESPECTFULLY SUBMITTED THIS 13TH DAY OF APRIL 2004.

CHIVERS CARPENTER

Per:_____________________
Ritu Khullar Counsel for the Applicant, the Northern Alberta Institute of
Technology Academic Staff
Association

PART VI – TABLE OF AUTHORITIES

VOLUME I – ACADEMIC AUTHORITIES

VOLUME II – CASE AUTHORITIES

PART VII – STATUTES, REGULATIONS, RULES, ORDINANCES OR BY-LAWS

Technical Institutes Act, R.S.A. 2000, c. T-3, ss. 2 and 37:

Establishment of technical institutes

2 The Lieutenant Governor in Council may by order establish technical institutes and shall designate the name of each technical institute so established.

...

Academic staff associations

37(1) For each technical institute there is to be an academic staff association.

(2) Each academic staff association is hereby established as a corporation and consists of the academic staff members of the technical institute.

(3) Each academic staff association shall have the exclusive authority, on behalf of the academic staff members, to negotiate and enter into an agreement.

Mutual Company (Life Insurance) Conversion Regulations, SOR/99-128, s. 4(2):

4.(1) A conversion proposal shall include

...

(d) a detailed description of the benefits to be provided to eligible policyholders and the method to be used to apportion the value of the converting company among eligible policyholders, indicating

(i) the basis on which any variable amount of benefits will be calculated,

...

(2) The variable amount of benefits referred to in subparagraph (1)(d)(i) may be calculated based on any factor or combination of factors, including a policy’s contribution to surplus, policy reserves, cash values, amounts of policy coverage and the duration of the policy.

...

Règlement sur la transformation de sociétés mutuelles (assurance-vie), DORS/99-128, s. 4(2):

4.(1) La proposition de transformation comprend:

...

(d) une description détaillée des avantages à accorder aux souscripteurs admissibles et de la méthode devant servir à répartir la valeur de la société en transformatin entre ceux-ci, qui:

(i) indique le fondement du calcul de tout montant variable des avantages,

...

(2) Le montant variable des avantages visé au sous-alinéa (2)(d)(i) peut être calculé selon tout facteur, ou combinaison de facteurs applicables, y compris la contribution d’une police à l’excédent, les provisions techniques, les valeurs de rachat, les montants de protection ou la durée de la police.
...