Unlimited deposits into universal life policies: Court rules in favour of Manulife, iA and BMO

By Andrea Lubeck | March 18 2019 01:30PM

Last Friday, the Saskatchewan Court of Queen’s Bench ruled in favour of Manulife, iA Financial Group and BMO Insurance in litigation brought against them by Mosten Investment, Ituna Investment and Atwater Investment which sought to use universal life insurance policies for unlimited deposits.

The three limited partnerships were suing the insurers in Saskatoon, arguing that side accounts linked to these insurance contracts had no upper limit with respect to the amount invested. Some of the side accounts in question, issued during a time of higher interest rates, allowed holders to invest with guaranteed rates of up to five per cent.

Judge Brian J. Scherman of the Saskatchewan Court of the Queen’s Bench stated that Ituna’s position was inconsistent with the language and purpose of the contract, said iA in a press release. The judge added that life insurance contracts were never intended to be used as deposit accounts and for purposes unrelated to life insurance.

Manulife also issued a statement on the Court’s decision. “As we have previously stated, we were always confident we would ultimately prevail in this matter and that it would not have any material impact on the Company’s business.

Commercially absurd

“(The decision) is consistent with our position that this case was legally unfounded and commercially absurd, and that consumers purchasing universal life policies, and the insurers issuing these policies, never intended to have the policies function as deposit or securities contracts,” added Manulife.

iA expressed a similar view. “iA Financial Group has always maintained that the position taken by Ituna was legally unfounded and that life insurance contracts were never intended to be used as deposit accounts and for purposes unrelated to life insurance.”

At press time, BMO Insurance had not yet responded to Insurance Journal’s request for their comments on the case.

CLHIA welcomes the decision

The Canadian Life and Health Insurance Association (CLHIA) applauded the decision.

"This ruling is firmly in the public interest and further reinforces the important division between banking and insurance that continues to be core to the legal and regulatory framework governing the Canadian financial services industry," said CLHIA President and CEO Stephen Frank.

"This important ruling unequivocally supports what insurers, their customers and regulators already know to be true: the purpose of an insurance policy is to protect the lives of the insured and their families. Insurance policies are not intended to offer an unlimited investment opportunity completely unrelated to insurance coverage," he added.

The CLHIA underlined that it intervened in this case “because the position taken by the plaintiffs was contrary to the nature and intended purpose of the product, fundamental insurance law concepts and Canada's regulatory system.”

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