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So getting insurance on a significant unsecured transaction is legally possible, however it is not an economically sound business decision
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A bank has insurable interest on their secured transactions
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Thus, the owner and the bank can have insurable interest on the same property. However, this would only be one policy. Yet these will be two different contracts (remember, policy evidences the contract, it is not the contract)
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It is a separate insurance arrangement inside the policy for the bank
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Thus, the deliberate act of the insured of let’s say torching his building doesn’t prejudice the claim of the bank; otherwise, contract wouldn’t be commercially viable
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back to formation
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formation is slightly different in the case of life insurance contrasted with other insurance contracts
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2425. Life insurance takes effect when the application is accepted by the insurer, provided that it is accepted without modification, that the initial premium has been paid, and that there has been no change in the insurability of the risk since the application was signed.
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Life insurance:
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Application (first $ paid) …[risk assessment]… acceptance
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Risk assessment is mostly in the form of medical assessment
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“that there has been no change in the insurability of the risk”
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if there has been a change in the insurability of the risk, doesn’t matter if the person dies of another risk apart from the risk which could have occurred during this risk assessment period – the individual will still be barred from recovery. This is because the insurer has issued a policy based no a specific risk profile.
Laratta v Peace Hills Gen Ins; Ab KB, Insurable interest: at transfer of ownership not at time of possession.
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F: L sues P for payment under a contract of insurance between the parties, which L purports covered the loss resulting from the theft of a ’94 BMW. P says that L is not entitled to payment because he did not have an insurable interest in the BMW at the time it was stolen.
Issue: Does Laratta have an insurable interest in the car?
Held: YES.
Reasoning (Moore J.):
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validity of an insurance contract depends on the interest the insured has in the subject matter of the contract; insurance contract is valid if the insured has an insurable interest
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Factual expectancy test: “Interest does not necessarily imply a right to the whole or part of the thing, nor necessarily and exclusively that which may be the subject of privation, but the having some relation to, or concerning the subject of the insurance; which relation or concern, by the happening of the perils insured against. may be so affected as to produce a damage, detriment or prejudice to the person insuring. And where a man is so circumstanced with respect to matters exposed to certain risks or dangers, as to have a moral certainty of advantage or benefit, but for those risks or dangers he may be said to be interested in the safety of the thing. To be interested in the preservation of a thing, is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction. The property of a thing and the interest devisable from it may be very different; of the first the price is generally the measure, but by interest in a thing every benefit and advantage arising out of or depending on such thing may be considered as being comprehended.”
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Ownership of the good passes at the point in time in which it is the intention of the buyer and seller for it to pass
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Held: ownership did transfer between men because they intended ownership to transfer.
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Factual Expectancy Test of Kosmopoulos is upheld.
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Not necessary to show legal ownership in order to support an insurable interest
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There is no statutory condition in the Insurance Act which states that a person must be an owner before insurance is payable.
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When an “insurable interest” suffers a loss, there is a presumption in favour of the insured
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The finding of ownership may be helpful in determining an insurable interest, but it is not determinative.
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In this case, L is clearly the owner of the car and thus has insurable interest. In any case, he clearly benefited from its existence and was prejudiced by its destruction.
Ratio: If a person would suffer a loss if certain property was lost, then he or she has an insurable interest in that property. [56] An insurable interest is: “having some relation to, or concern in the subject of the insurance, which relation or concern by the happening of the perils insured against may be so affected as to produce a damage, detriment, or prejudice to the person insuring.”
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Insurance Law – May 7
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we’ll continue to discuss CCQ 2425
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Recall: 2425. Life insurance takes effect when the application is accepted by the insurer, provided that it is accepted without modification, that the initial premium has been paid, and that there has been no change in the insurability of the risk since the application was signed.
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We have this thing in life insurance is that the formation at acceptance and taking effect aren’t always consonant as they do more readily in damage insurance because of the question of the assessment of the risk which involves the medical exam (and sometimes this question of the payment of the first premium)
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Thus, this period is problematic. Temporary insurance has been developed to deal with this period.
Dépanneur Centre-ville (1980) v. Union du Canada Assurances-vie (1985) C.S. 135 – Life Insurance Formation
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F: 2 partners buy a downtown dep. They each agree that the partnership will take out life insurance for each partner. On Dec 20 1980, they take out life insurance on Bussières (one of the partners). According to the proposal, the insurance is conditional upon payment of at least 15% of the annual premium and a medical evaluation. Bussières passes the medical exam, which took place on Dec 31 1980. He had also paid up the required 15%. So the insurance took effect. On Jan 2, he suffered a heart attack and was hospitalized for 4 days. The policy was issued on Jan 23 and delivered to the broker. That night, Bussières dies. Union refuses to pay the indemnity because it says that the definitive policy was void ab initio because Bussières failed to disclose material information. Agent is acting for the Insurer. There is a certificate / interim coverage policy that is granted.
Dec 15: Problem in left arm. Diagnostic = muscular.
Dec 20: Application, interim coverage, $150 payment for the premium.
Dec 31: Medical exam: myalgia. Fancy word for pain. Patient is okay.
Jan 2-4: Heart failure. Goes to the hospital. Doctor later testified that he would have never recommended acceptance of the risk.
Jan 23: Agent receives policy from the insurer. Coming into force on Jan 1.
Jan 23: Bussières dies that night.
Issue: Is the interim or definitive policy in effect? Interim (Bussieres entitled to receive indemnity); main issue is delivery here.
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If definitive policy had been in effect it could have been voided for failure to disclose material change in health since beginning of interim policy
Reasoning:
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There are 6 conditions. See p.44.
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The suspensive conditions were all met: payment of 15% + successful medical exam + death occurred after the exam during the interim policy.
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If definitive policy was in effect, the insured should have disclosed a change in insurability per the 3rd condition for coming into effect of life insurance
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Now the insurer is arguing that the K was formed but did not take effect, b/c it was not delivered to Insured
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But there is a presumption of delivery per CCLC 2518. The presumption creates a legal consequence. It creates a rebuttable presumption. Absent proof, we presume the policy was delivered to the client.
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However, the policy had not been delivered to Bussières because it was delivered to the broker (an agent for the insurer) and there was a condition in the policy that the full premium must be paid in order to take effect – and it was not (p45); thus it was a conditional delivery.
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Therefore the terms of the interim proposal were in effect, since the definitive policy was not in effect given the suspensive condition in the policy.
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Moreover, the insured has no obligation to divulge any health changes after the interim contract takes effect (or even for the definitive policy)
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Once life insurance is in place, there is no duty to divulge changes in health. Thus the conditional insurance is not affected by this requirement.
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But he did have a duty to divulge changes in health for the definitive policy per CCQ 2425.
Rule: A proposal for life insurance takes effect as long as the suspensive conditions are met. If there are changes to the health of the insured after the interim policy takes effect, he is under no obligation to make the insurer aware of these changes, even if the actual policy has not been issued yet. A valid interim policy is in effect even if there is a material change of risk once the policy is in effect.
Comments:
Note in general that the requirement of disclosure for changes in risk is different in damage insurance (required) as compared to life insurance (not required once the policy appropriately takes effect). It’s important to point out that it is never ‘required’ per the strict sense of the term. A party just runs the risk of not having their life insurance honoured once an ex-post facto investigation takes place after death.
Class Notes
Facts: Business arrangement. Depanneur is a business which applies for insurance on the life of one of its shareholders. On 15th Dec. consults doctor for pain in left arm, doctor diagnosis is muscular pain. Makes application and also gets interim coverage / conditional insurance for $150. Medical examiner is acting on behalf of insurer; insured informs doctor about first consultation (doctor says its fine probably nothing). The policy received by the agent says coming into effect date Jan. 1.
Consultation (15th Dec.)---------- Application (20th Dec.) (Interim coverage / conditional insurance)----- Medical Exam (31st Dec.)------ Hospital consultation: diagnosis with cardiac problems (2-4 Jan.)---- Agent receives policy (23 Jan.)----23 Jan. Person dies.
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There are two things we have to think of here:
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Temporary Coverage
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Says we’ll pay if death happens before the delivery of the policy and before the end of 60 days from the date of the coverage.
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Definitive Policy (which would have taken effect on Jan. 1)
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4 dependent conditions seem to be present. What is the key point on which we’ll frame our problem?
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Was the policy delivered? (this will help us decide if the temporary coverage was in force or the actual policy; if actual policy no coverage!)
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How do we ascertain if it was delivered or not?
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2426. Accident and sickness insurance takes effect upon the delivery of the policy to the client, even if it is delivered by a person other than a representative of the insurer; A policy issued in accordance with the application and given to a representative of the insurer for unconditional delivery to the client is also validly delivered.
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Agent received it on Jan. 23. Looks like we had delivery. But was it unconditional delivery? NO! there was a ‘hold’ on the policy due to outstanding balance.
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Thus, since the policy was not delivered, interim policy was still in effect and the change in insurability was still in effect.
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Therefore, in temporary coverage, a change in insurability does not effect its validity. How is this allowed? Because the insurer can be more generous to the insured, just not harsher. It also shows us that it is a separate insurance contract and it is in place from the date of application.
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Do you think 2425 would also apply in Group Insurance?
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Group Insurance: Insurer master policy applications + 1st premium
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But no reason why it shouldn’t include group insurance
Cie d’assurances-vie Transamerica v. Toutant [2002] R.R.A. 685 – Life insurance, interim coverage, resolutory condition
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F: On May 2 1989, an application is taken for the son, paid for by the insured’s father. The proposal states that the policy takes effect when the 1st premium is paid. It also states that no medical exam is required, but that blood work and a urine sample will be required forthwith (will be requested, blood work and urine sample constitutes the medical exam). On May 12, a cheque is made out and mailed to the broker, who receives it on the 13th. On the 14th, the son is fatally wounded. He dies on the 15th. The son stole a car, got drunk, lost control of the car, and died. On May 25th, unaware of this fact, the insurer cashed the cheques. The insurer then refuses to pay the claim because the policy could not take effect since the insured was already dead on the 25th.
I: Was the interim policy in effect? Does Transamerica have to pay the claim?
Held: Yes. Yes.
R: Public order argument: An innocent beneficiary cannot be precluded from receiving the insurance indemnity even if the insured caused his own death via criminal activities. Secondly, payment of the 1st installment is a suspensive condition to the policy. This suspensive condition is met when the cheque is received by the insurer. The cashing of the cheque is just a resolutory condition (meaning if NSF than it can void the formed contract). Once the terms of this condition are met, the policy is triggered. A medical exam is this case is a resolutory condition that can have the effect of negating the contractual obligations of the insurer. In this case, there was no medical exam required, and the blood and urine samples had not been collected. Thus, the suspensive conditions appear to be met and coming into force takes place when the suspensive conditions are met.
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Another condition of the temporary insurance was that it came into force at the date of the proposal and the insurability of the party was assessed at this date as well…
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Had the tests been collected, they could have been used to the benefit of the insurer and discharged them of their duty to pay the indemnity according to the provisional K.
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Had they requested it as a condition for the interim coverage, then it would have been a suspensive condition rather than a resolutory condition.
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But even if the medical exam showed no insurability on the definitive, the provisional one would still apply.
Rule: A medical exam can be a suspensive or resolutory condition on a provisional or definitive agreement. Here it is a resolutory condition that, when triggered, liberates the insurer from the contractual duties and obligations of the policy terms.
Additional notes: Look at 2425. He must be insurable. We are not concerned about the definitive coverage, we are concerned with the interim coverage. If the insurer cashes the cheque then it is assumed that it was cashed on the day of the cheque, its a valid payment. Cheque was received on the 13th and he sent them off right away to the insurer. It is the day the insurer receives it; things that are in control of the insurer. CCQ: This case revolves around how the medical exam clause was drafted. Had the clause been drafted as a suspensive condition on the provisional agreement, the provisional insurance would not have taken effect and the insurer would not have to pay the indemnity.
Class Notes
Facts: Application on May 2, 89. May 13 he gave the check for the first premium; at this point broker gave the dad the interim cover note. May 14: son is fatally injured in a car accident (in a stolen car). May 15: father goes to broker, gets cover note; son’s organs are harvested and he dies. 25 May: insurer cashes the cheques. There was no medical exam done here.
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what are the terms of the interim coverage?
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The present cover note does not guarantee any insurance until its conditions are met. States that the payments are received subject to the following conditions: if medical exams demanded by the company are completed, if the company is persuaded that at the time of the application the person was insurable, then the policy will come into effect at the date of the application.
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This is more towards a guarantee rather than insurance.
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Why didn’t the insurer request a medical exam? Was this necessary for the coverage to be in place? Can we reproach the insurer for not having asked for the medical exam?
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They probably didn’t ask for the medical exam because they hadn’t received a cheque yet
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But policy then came into force on May 13 when the note was issued and the first premium paid
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The wording in the cover note doesn’t say the company must demand a medical exam
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The fact that the insuring company only cashed cheque May 25 doesn’t matter. The fact that the cheque was in the hands of the agent on May 13 constitutes payment. They only counter-argument would be if the cheque was NSF, which it wasn’t.
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The insurer can’t hide behind the fact that a medical exam never took place
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What about the criminal nature of the cause of death?
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The innocent beneficiary should not be punished because of another’s criminal act
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