the limit on this is 2409 with the normally provident insured
also looks like an objective standard with some subjectivity in it
it is possible to argue some subjectivity by invoking it
materiality is not with respect to the questions, it is with respect to the answers
how do we measure notoriety or something that the insurer can be presumed to know by its notoriety?
Canadian Indemnity v Johns Mansville (1990) 2 S.C.R. 549 – Notoriety, between public and expert knowledge - CVL
F: JM is involved in the mining and selling of asbestos and asbestos products. It took out a general product liability insurance with CI. In 1973, the policy was renewed but later annulled by CI. It alleges that JM failed to disclose material information: its knowledge of health risks associated with asbestosis and other diseases. JM states that it was aware of this disease but fully and fairly represented every fact which showed the nature and extent of the risk. In addition, JM states that CI should have known of this because of the notoriety of the disease (which was first disclosed in the early 20th century and an extensive medical report was made available to the public in the 60’s).
I: Whether insurer presumed to know undisclosed facts by reason of their public character or notoriety? Did JM conceal material information? What is the threshold for notoriety?
Yes; No; Notoriety is not what the general public knows or what experts know, but it is somewhere in between: what a reasonable competent underwriter in the industry knows.
R:
Public Character and Notoriety of facts:
The insured has an obligation to disclose all the facts that are material to the risk, but it is not obliged under art. 2486 C.C. to disclose facts known to the insurer or which from their "public character and notoriety" the latter is presumed to know.
The concept of "public character" refers to the availability or accessibility of information, and the concept of "notoriety" must be determined with reference, not to the general public, but to the insurer.
The standard, however, is not the insurer in a particular case but rather a reasonably competent underwriter insuring similar risks in the industry covered by the policy.
CCLC 2489: the description of the public character or notorious facts must be substantially accurate - The insured will be relieved of its duty to disclose where material facts are substantially as depicted by virtue of public character and notoriety
Here, the facts were accurate and disclosed by JM. CI should have known the risk.
It was a trainee that determining the risk.
They did not meet the standard of the reasonable competent underwriter.
The Ir seems to have accepted the risk blindly.
Therefore, they have to assume the risk.
Insured’s duty to inquire:
The Id is entitled to assume that he is dealing with a competent Ir and that if the Ir wants additional information, it will make that request to the Id.
Here, if CI wanted more information, it should have asked for more information.
Utmost good faith:
TheId will disclose fully and fairly or risk having the contract annulled, and the prudent insurer will ensure that it acquires a good knowledge of the industry in which it insures or fail to do so at its peril.
Rule: (1) Public character and notoriety of facts are viewed from the point of view of an reasonably prudent insurer operating in that particular industry. (2) As long as these public facts are substantially accurate of the true reality, there is no duty to disclose on the part of the insured. (3) Utmost good faith requires that the insured will disclose fully and fairly, or risk having the contract annulled, and the prudent insurer will ensure that it acquires a good knowledge of the industry in which it insures, or fail to do so at its peril.
Additional notes: Does the internet and access to information have an impact on what the standard actually is? Is the burden higher now and does the Ir have another burden? Does this further limit the materiality of disclosure by the Id? This doesn’t leave a whole lot in 2408.
Class Notes: Facts: The material fact was the exceptionally high of pulmonary disease with people who mine asbestos. The issue in this case was that the insured failed to disclose a medical report relevant to this fact.
Issue: Is notoriety only what is in the public domain, public knowledge? Is it only for people in the industry?
The Courts find a middle ground between everything in the public domain and stuff found in the industry. The Courts come up with the concept of what a reasonably competent provider of insurance would know. In this case, the underwriting department knew almost nothing about asbestos related health risks. Insurance companies are expected to do their own due diligence. This argument is founded in the notion of utmost good faith: it is not right for an insurance company to not do due diligence and then when it comes time to pay they turn around and say “oh we didn’t know about that so we’re not insuring you.”
Coronation Insurance v. Taku Air Transport (1991) 3 S.C.R. 622 – CML - Insurer presumed to know the information it has within its own files ; declaration of risk
F: In 1978, Taku was insured by CI and within the 1st year of coverage, had 3 plane crashes. CI did not renew the policy. In 1986, Taku reapplied for insurance with CI. CI did not check their own files and entered into an insurance K with Taku. The policy stated that it would be void if Taku had misrepresented any material facts or if the total number of passengers exceeded the declared number of seats on the plane. Taku did not tell CI that it had crashed 3 times in the past. Instead, they said they only crashed once. In addition, soon after the policy took effect, Taku had another plane crash, killing 5 people (but the plane only had 4 passenger seats). CI denies coverage because the 2 conditions were triggered.
I: Is the contract void ab initio on account of misrepresentation or extra passenger carried?
Held: For misrepresentation: No. On account of extra passenger carried: Yes.
R:
The insurers cannot escape liability on the grounds that Taku failed to disclose its accident record.
While the utmost good faith doctrine as formulated in 1766 can still hold true where the policy is for the exclusive benefit of the insured, it should not be applicable in the highly regulated field of aviation insurance, where insurance for passengers has been made a condition for licensing air carriers.
Where the insurance policy required by statute or regulation is primarily for the benefit of members of the flying public and not just the insured, the insurer must take some basic steps to investigate the flying record of the air carrier applying for insurance.
At a minimum, it should review its own files on the applicant, and should make a search of the public record of the air carrier's accidents.
This does not place too high a burden on insurers because it is easy to get this information.
However, the Ir are entitled to rely on Taku’s representation of the number of passenger seats. It can only be aware of that if the owner tells them.
Therefore, the policy is void ab initio and since the Id violated this term, the K is void.
The contract term which limited liability to an agreed number of passenger seats was not affected by the Federal Court decision. The airline violated this term of the policy. The policy was therefore void against the airline.
Rule:
Where it is easy for the insurer to verify the quality of the insured, it has a duty to perform that verification (the Ir cannot be willfully blind).
Where there is a statutory requirement of insurance for reasons of public safety, the insurer must take reasonable steps to verify the quality of the insured.
If the insurer is in a position not to have access to specific information about the insured, then regardless of public safety concerns, the insurer is not responsible to pay the indemnity in the case of a breach in the declaration of risk by the insured.
You are presumed to know what is going on in your own files. Class Notes Facts: Insurance company didn’t open up their own files on Taku. They simply asked Taku if they had previous accidents and Taku didn’t tell the truth and understated the amount. There was a clause that stated that if there was any misrepresentation there will be no indemnity. The problem was could the insurer do that when the coverage was not really between the insurer and insured but for the benefit of third parties? The legislator had initially found that this exclusion clause was allowed. Initially, the contract was ruled void ab initio. But higher courts ruled that a company cannot get a contracted voided simply because they didn’t check their own file they knew this information and this alone would not have voided the policy. And on the other hand, # of seats is information purely in the hands of the insured and this thus voided policy because this is information the insurer could not have known and Taku had misrepresented.
Mansfield is limited to QC
Taku cases imposes obligation on insurer and basically says it’s a case by case basis
CCQ 2410 tells us the sanction for failure to represent correctly
Also, in 2410, Death or accident doesn’t have to be linked to subject matter of information not disclosed, so the cause of death doesn’t matter.
Materiality is assessed at the time the question was asked
Ouellet c. Industrielle, cie d’assurance sur la vie [1993] R.R.A. 464 – CVL – indemnity denied for non-disclosure to clear question
Facts
-Insured died in car accident and wife was refused insurance on the ground that the insured had declared the he had been a non-smoker for a year and a half prior to his application for life insurance and had not mentioned that he occasionally smoked small cigars during the 12 months prior to the application.
-Question asked on application: Have you used tobacco in any form during the last 12 months? The application was not subject to any interpretation on the part of the applicant.
-The insured has not mentioned that he occasionally smoked small cigars during the 12 months prior to signing the application and thus made a false declaration.
Issue
Appellant claims that the words “faire usage de” in the questionnaire were ambiguous / unclear.
Held: [NO]. Reasoning
-Appellants argue that the policy cannot be annulled unless there is proof that the consumption of tobacco has a degree of habitualness. The consumption needs to be more than occasional.
-The court does not agree with this. They hold that the questionnaire put great importance on the question on smoking by making a separate text for it on a separate piece of paper. The words are also clearly unambiguous.
-Also use of the word “déjà” signifies that the insurer wants to know if at some time in the past the insured smoked.
-They conclude that the interpretation was clear.
-They also conclude that there is nothing in the evidence to show that the insured was badly informed.
Rule The policyholder, even the insured if the insurer requests of him, must declare all the circumstances known to him which are of a sort to likely influence in an important way a reasonable insurer in establishing the premium, appreciation of the risk or the decision to accept the risk.
Class Notes Facts: Insured died in car accident. Insurer refuses indemnity because of his response to the following question: have you used tobacco in any form in the past 12 months? Answer: No. Question of materiality was not called into question. The debate was around what he should have understood by that question? Is this a question that suggests habitual use? Or occasional use?
The insurer has to make decisions about the risk and one of the relevant factors in assessing risk is the use of tobacco. Once we’re in the realm of the use of tobacco, it doesn’t matter if it was one cigarette or a 100. The insurer is concerned about the pool and the risk; and generally statistics show that use of tobacco show a higher risk of mortality than the non-use.
Why are we not concerned about dates here? Because the contract was wrong from the beginning: CCQ 2410. CCQ 2424 doesn’t help you here because the Courts is implicitly saying that there was fraud here (an intent to deceive).
2424. In the absence of fraud, misrepresentation or concealment as to risk does not justify the annulment or reduction of insurance which has been in force for two years.
This is not to be confused with the problem of change in insurability
It is about what is disclosed at the time of making the application
Now we move to CML. Position is same in the sense that insured must make disclosure of material facts in his knowledge and the standard for insurer is the same: reasonable insurer’s point of view
There’s some subjectivity here because you speak about that specific insurer – inducement of that particular insurer
This is not present in the CVL but practically speaking, there’s no difference.
Ontario Metal Products v Mutual Life of New York [1925] 1 W.W.R. 362 – leading case on the question posed above – Materiality test for declaration of life insurance risk
Facts
-Mr. Schuch had his life insured for 50 000$. The policy is dated December 13th 1918 and Mr. Schuch died of cancer on April 3rd 1920.
-The liability of the appellants is disputed on the ground that the policy had no effect as a valid contract owing to a misrepresentation or concealment on the part of the insured in the answers which he gave to certain questions in the application form, a copy of which was endorsed in the policy.
-Questions concerned illnesses to be listed since childhood. And to state every physician who had treated him in the past five years. S. answered that he had not been treated by a physician. His wife got bronchitis in 1915 and Dr. F prescribed a pick-me up to her. He prescribed the same thing to S because he was run down from working so much. Dr. F never examined S.
-Respondents claim “rundown condition” did not need to be marked as an illness
Issue
1)Were the omissions that S made material to the contract? [NO]
2) What is the test of materiality?
Held: (1) No, Appeal dismissed. The non-disclosure was not material to the contract; (2) the test for materiality is if the matters concealed or misrepresented had been truly disclosed, they would, on a fair consideration of the evidence, have influenced a reasonable insurer to decline the risk or to have stipulated for a higher premium.
Reasoning (Lord Salvesen)
-A man who is able to attend his office every day and all day and to do exacting work in a competent way, cannot be described as suffering from illness, even if he is pale and sometimes feels overtired.
-It was S’s duty to disclose the name of Dr. F who had prescribed or treated him. This finding would have been conclusive against S if the policy been that the accuracy of the assured’s answers be a basic condition of the contract.
Ontario Insurance Act lays down in unmistakable language:
No policy shall be avoided by reason merely of any misrepresentation or inaccuracy in a statement made by the insured in the application form, whatever the terms of the policy may import otherwise.
Any misrepresentation which may avoid the contract must be misrepresentation of a fact and must be material to the contract.
The test for assessing materiality is if the matters concealed or misrepresented had been truly disclosed, they would, on a fair consideration of the evidence, have influenced a reasonable insurer to decline the risk or to have stipulated for a higher premium.
The application of the name of a physician was not material to the contract; it would not have changed the insurer’s decision per the facts of this case as per the test above.
Rule: The test of materiality must always be a question of degree, and therefore to be determined by the court. The test is if the matters concealed or misrepresented had been truly disclosed, they would, on a fair consideration of the evidence, have influenced a reasonable insurer to decline the risk or to have stipulated for a higher premium. [delaying consideration of its acceptance until they had consulted Dr. F. would not qualify].
Class Notes Facts: Court is concerned with the materiality of the representation made by the insured on the life insurance policy. Materiality is a question of fact, is assessed with respect to the answers and not with respect to the question, and is related to health and life. Case about individual who worked for the emissions industry. He took out policy in 1915. Wife gets bronchitis, goes for treatment, doctor recommends same for man because of his physical appearance. Gave Zamboletee tonic. This was given as a ‘pick me up’. Question on insurance policy was: state every physician or practitioner who has treated you, etc. He did not mention this physician.
Issue: was the inaccuracy of answering that question, was that material to the risk?
Held: No. Because the insurer said they would have accepted the risk anyways. So the materiality was not in the question but in the answer.
Leading case on how materiality is assessed in the CML.
now we’ll look to the particularity of fire insurance in the CML
under fire insurance the contract is void if there is a misrepresentation of the risk or fraudulent omission of a material element.
Extra burden on the insurer as far as omissions go
Leading case on this is Taylor
Taylor v London Assurance Corp [1935] S.C.R. 422 – CML – Fraudulent misrepresentation must influence the insurer
F: T owns buildings in Northern Ontario, an area generally known to be prone to forest fires. When T learns of a possible fire near his buildings, he takes out damage insurance with LAC. He gets his wife to call LAC to get the policy. When she calls, LAC asks if there is a fire in the adjoining district, she answers “yes, all over the country.” The property is destroyed on the day following the verbal arrangement with the agent. LAC claims she fraudulently mislead them (her omission was a misrepresentation). It refuses to pay the claim.
I: Whether there was misrepresentation or fraudulent omission to communicate material circumstance.
Held: No. Insurer must pay indemnity.
R (Duff J.):
Fraudulently, in the Ontario statute, connotes actual fraud.
She did not make a full and frank disclosure of all the facts and thus likely does not constitute fraud under the Insurance Act.
Fraudulent does not mean with the intent of deceiving the insurers.
Fraudulent means that he did not observe that good faith towards the insurers, which is his duty to them.
As for misrepresentation, LAC’s agent Kennedy, called as a witness, does not say that he was in any way misled by anything that Mrs T said.
So if it was a misrepresentation, it was a misrepresentation in the air.
Furthermore, misrepresentation must have a legal effect, i.e. it must be one influencing the other party to enter the contract. As mentioned above, Kennedy said that he wasn’t influenced, and as such it has no legal consequence.
If the misrepresentation shows damage, it would be given a legal effect.
If the misrepresentation fails to show damage, then it has no legal effect.
Rule: A fraudulent misrepresentation must actually influence the insurer. If it does not actually influence the insurer, it has no legal consequence.
Comments:
Insured must disclose everything he thinks is material
K is nullified if Insurer would have actually been influenced by the material fact that was failed to be disclosed.
S. 148 – statutory conditions – must be included in every Insurance K, and policy conditions cannot be harsher that the statute. This makes it harder for an insurer to get out of paying an indemnity.
Inducement to contract (subjective) informs our analysis of misrepresentation.
IN CVL and CML the reasonable insurer is the test to determine if facts are material which must be disclosed.
Subjective element becomes the most important part of the materiality test.
The insurer cannot be neutral, it must be a material fact as to whether the K would have been concluded or not in order to nullify the K.
Class Notes F: T owns buildings and stuff in Northern Ontario. Forest fires in district – common knowledge. Mrs. T learned of fire in close by township. Told this to Mr. T. Mr. T asked Mrs. T to take out insurance. Mrs. T answers insurer’s question of whether there are any fires by saying “Yes all over the country!” Building burns. Insurer refuses indemnity.
I: Was this a fraudulent omission?
Insurer’s said that this wasn’t necessarily fraudulent because she was in good faith. They argued fiduciary duty (which is a much higher duty than utmost good faith). Under the statute however for the omission to be fraudulent it had to be willful and (deceitful?). So the question is was it a misrepresentation then? 2/3 said it was an omission rather than a misrepresentation, but it was not a fraudulent omission. Furthermore, the judges found that Mrs. T did not intend to mislead or deceit. The fraud in the statute is actual fraud and there has to be an intention to deceive, etc. Also, it cannot amount to misrepresentation because what she said was a) factually correct and b) whatever she said did not induce the insurer to the contract there was no legal effect to her statement.
challenging to distinguish between misrepresentation and omission
the insurer has an interest in framing every question in which an answer would be a misrepresentation rather than an omission since misrepresentation would be easier to prove
Declaration of Risk CCQ Representations and warranties of insured in non-marine insurance 2408. The client, and the insured if the insurer requires it, is bound to represent all the facts known to him which are likely to materially influence an insurer in the setting of the premium, the appraisal of the risk or the decision to cover it, but he is not bound to represent facts that the insurer knows or is presumed to know because of their notoriety, except in answer to inquiries.
2409. The obligation with respect to representations is deemed properly met if the representations are such as a normally provident insured would make, if they were made without material concealment and if the facts are substantially as represented.
2410. Subject to the provisions on statement of age and risk, any misrepresentation or concealment of material facts by either the client or the insured nullifies the contract at the instance of the insurer, even with respect to losses not connected with the risks so misrepresented or concealed.
2411. In damage insurance, unless the bad faith of the client is established or unless it is established that the insurer would not have covered the risk if he had known the true facts, the insurer remains liable to the insured for such proportion of the indemnity as the premium he collected bears to the premium he should have collected.
2412. A breach of warranty aggravating the risk suspends the coverage. The suspension ceases as soon as the insurer has acquiesced or the insured has remedied the breach.
2413. Where the representations contained in the application for insurance have been entered or suggested by the representative of the insurer or by an insurance broker, proof may be made by testimony that they do not correspond to what was actually represented.
Lirette v Great American Insurance Co [1987] – CVL -Materiality Test – Reasonable insurer, Moral Hazard
F: The owner of a hotel obtains damage insurance from GAI. During the normal course of business, he sells liquor even though he does not have a liquor permit, which he did not disclose to the insurance co. A portion of the hotel burns down and he claims an indemnity of about $300,000. GAI refuses to pay because it says that had it known that Lirette sold liquor without a license, it would have refused to insure him, even though it has nothing to do with fire damage. There is also a hypothecary creditor that stands to lose if the indemnity is not paid out.
I: Was the information that L withheld material?
Held: Yes.
R:
Selling liquor without a license is illegal in Quebec.
But that in and of itself does not absolve the insurer from paying the indemnity.
The test by which one can determine whether withheld information is material: would a reasonable insurer, had he known the information, offered to insure the applicant.
In this case, the statutory breach is a moral hazard: he’s selling liquor illegally. Could be shut down at anytime. Risk of him burning the building to get payout increases.
The fact that this information was withheld from the Ir significantly influenced the Ir’s appreciation of risk.
As a result of the omission, the policy ought to be void.
What about the hypothecary creditor?
They cannot be in a better position than the Id.
There is a hypothecary clause which protects the mortgagee from the intentional fault of the insured. But, in order to take effect, there must be a K, and if the K is void ab initio, how do we have a clause at all?
They had at least 2 alternatives:
Make sure that the Id is divulging all the information to the Ir.
Take out a policy itself for the value of the hypothec.
Failure to diclose a moral hazards can be grounds for nullifying an Insurance K
Rules:
The materiality test is: would a reasonable insurer, had he known of the concealed information, still offered to insure the applicant?
A hypothecary creditor cannot be in a better position than the claimant. He can always consider alternatives to reduce his risk of default caused by damage.
Maryn v UNUM Life Insurance Co of America 9 C.C.L.I. (3d) 1– CML – Declaration of risk in life insurance: non-material fact, no fraud
Facts
-In 1994, Maryn took out disability insurance with UNUM. At this time he completed the policy form. The policy was issued June 13th 1994. Before the end of the contestability period, Jensen (Maryn’s ex law partner’s common law spouse) called UNUM and told them that she personally saw Mr. Maryn get chiropractic treatments every day. Maryn had met Dr. Bergen, the chiropractor, on a bike trip and set an appointment with her claiming he had knee pain in order to meet her again (it was a ruse!). The plan worked and they became romantically involved. She gave him “preventative” chiropractic treatments. Maryn did not mention these treatments at all in the policy form he filled out for Maryn.
Issue
Was Maryn’s non-disclosure of chiropractic treatments material (materal to UNUM’s determination as to whether M was insurable as of the date of the application for insurance) to the application for disability insurance? Was it fraudulent?
Held: [NO, NO] Reasoning
(1) Materiality:
-Materiality is a question of fact for the court.
-The burden of proof of materiality is on the insurer. It is a question of fact in each case, whether, if the matters misrepresented had been truly disclosed, they would on a fair consideration of the evidence, have influenced a reasonable insurer to decline a risk or to have stipulate a higher premium.
-The test is objective in the sense that it refers to any prudent insurer in the normal practice of that sort of insurance business.
- The opinion or belief of the insured to the materiality is irrelevant.
- Materiality is assessed at the time the application for insurance is completed, because it is at that time that the underwriter must assess the risk.
- In disability insurance, one is under a duty of utmost good faith to disclose all circumstances within his knowledge which might influence the underwriter’s opinion as to the risk being assumed.
-In applying the materiality test, Judge holds that Maryn was healthy and normal at the time he applied for the policy. He holds that the insurance companies opinion was founded on a fundamental misconstruction of the events: The medical evidence established that his back was completely healthy and it seems clear that the treatments were preventative. Any inference of an event that led to back injury solely from his initiation of chiropractic treatments was unfounded.
-Concludes that the failure to disclose the chiropractic treatments cannot be regarded as material to the assessment of UNUM’s risk.
2. Fraud
According to the State, for fraud there must be a false representation, made knowingly, without belief in its truth, or recklessly, without care whether it is true or false. Nothing less than this will suffice for the defendant to succeed in this case. The insured, however, is still bound by her duty of utmost good faith until the incontestability clause takes effect.
-It is clear Maryn truthfully did not believe he had a back or neck problem. That subjective belief is supported by the objective medical evidence. Nor did the question make Maryn believe that these types of treatments would require disclose to UNUM. Thus, Courts find that Maryn did not consciously decide to withhold information or demonstrate a reckless disregard for truth in failing to provide this info to UNUM.
Comment:
- S. 191 and 192 of the Insurance Act create a two-step process for determination: 191 requires disclosure of all matters material to the insurance. S. 192 says that after a policy is in force for two years, a failure of disclosure as required by s. 191 will not provide a defence for the insurer in the absence of fraud.
Class Notes The chiropractic treatment was not found to be a material element. Courts found that disability insurance had been properly obtained. Either way, he didn’t conceal; since it was outside the 2-year period, in any event he had not been fraudulent. You didn’t need both of them; one or the other would have been enough. But it was ruled that the treatments were not a material element (and thus no concealment). But even there had been, it was not fraudulent.
Great West Life v Paris [1959] B.R. 349 – CVL
Disability; Agent can bind insurer
Facts
Paris signed an insurance contract where the insurer promised to pay all costs related to an accident and an indemnity of $100 per month of “invalide”. P hurt his knee playing hockey and had to be hospitalized and he was “invalide” for 8 months. He is now claiming $990. The insurance company claims they don’t need to pay because it was during the act of playing hockey that the accident occurred and in the insurance proposal Paris replied no to the question: “ Participer vous ou avez vous l’intention de participé au cours des 3 dernièes années aux sports organizes suivants:…” In his defence, Paris claims that the exclusive agent of the insurance company knew that he played hockey and that the agent claimed that “organized sports” signified sports in which the players were paid; he advised Paris that because he wasn’t paid he should answer no on the application.
Issue
(1) At the moment Paris was injured, was he participating in an organized sport?
(2) Is the agent and thus the company responsible for the interpretation that Paris made of the meaning of organized sports? Held: No, Yes. Reasoning
Juge Galipeault
The agent was clearly acting under the company’s mandate and thus was an agent of the insurance company and not P. Furthermore, Paris replied to question 8 based on the explanations of the agent of the insurance company. In addition, Paris acted in good faith. Thus, the interpretation given by the agent to P was binding. In addition, judge holds that organized sports does not include activity that Paris was involved in – thus, the term is ambiguous.
Juge Hyde Hyde disagrees with meaning that Galipeault gives to organized sports, but says that his disagreement highlights the ambiguity of the term. Therefore not unreasonable that Paris relied on interpretation given to him by the agent. Judge also discusses fact that the Insurance company claims it is not bound by any interpretation which the agent might have placed on this question: Agrees that information filled in forms should be attributed to the applicant and not to the agent. However, while its agent had no authority to interpret or advise in connection with the questions marked therein, the insurance company did not mark anywhere in the form that the agent had no authority to interpret or advise. Thus, in this situation, Paris had no reason to suspect that he was not making a full disclosure in his application.
Taschereau (Dissent)
Holds that the word “organized” has a very well known meaning. Thinks that it’s very obvious that Paris was part of an organized sport. Also holds that the agents role does not enable him to give alternate meanings to the policy.
Rule
Insurance companies must stipulate within the policy if they do not want the agents to aid the insured party in interpreting the meaning of terms in the policy. If not indicated, the interpretations given by individuals deemed to be agents of an insurance company can bind that insurance company.
Ambiguous terms will be resolved in favour of the insured.
Insurance Law – May 12
Exam:
Don’t worry about jurisdiction for the exam
Use any case or codal article; doesn’t really matter it’s the big picture
Change in Insurability – in life insurance CCQ 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.
Trust Général v Artisans Co-op Vie (1990) 2 S.C.R. 1185 – CVL
Effective Date: 3 conditions must be met for a life policy to come into effect; in this case, at no time are all 3 conditions satisfied together. Strict application of law.
F: The major shareholder of a company called X.Béton (the trust company subrogated X.Béton, “XB”) signs a proposal with Artisans for his life insurance, paid by for XB. In other words, the XB gets “key-man” life insurance for its main shareholder.
May 6 1977: A modification is made to the proposal, the Ir accepts it, and emits the life insurance policy.
May 6 1977: The Id attests that he is in good health and makes a $1000 down payment on the insurance policy.
Between May 6 and June 14 1977: The Id is hospitalized for severe headaches.
June 14 1977: The Ir accepts the Id’s request to modify the policy so that premiums are paid monthly rather than annually. The net result of this change is that the initial $1000 down payment covers the premium for the 1st month.
July 5 1977: Id is diagnosed with lung cancer.
November 1977: Id dies.
Artisans refuses to pay the policy on the basis that there was a change in insurability caused by the lung cancer.
Issus: Did the insurance policy take effect prior to the change in insurability?
No, all three conditions for Life Ins to take effect were not contemporaneous. R:
CCLC 2516 sets out the 3 conditions of a life insurance policy to apply:
Article 2516 C.C.L.C. provides that life insurance becomes effective when the application is accepted by the insurer, to the extent that (1) it is accepted without modification, (2) the initial premium is paid, and (3) there has been no change in the insurability of the risk from the signing of the application. These three conditions are placed on the same footing and must be fulfilled concurrently for the insurance to become effective. Since (3) is passive, determination is made when (1) and (2) coincide. Thus, concurrence can happen anytime after acceptance of application. If the initial premium is not paid until after the application is accepted, art. 2516 C.C.L.C. has the effect of a two part suspensive condition which when met causes the insurance contract to come into effect.
Applying the facts to the law:
The application was signed and accepted on May 6, 1977;
Only $1000 had been paid, not the full premium.
The application was modified on June 14, 1977, the annual premium is switched to monthly payments.
There was a change in condition (insurability) sometime between the proposal date and the coming into force of the definitive policy.
Therefore, the definitive policy was never in effect because the 3 conditions were never met (the 1st installment was only paid on Jun 14 and there was a change in risk before that time, which the Ir never accepted).
Rule: Three conditions must be met contemporaneously for a life insurance policy to come into force
Comments:
Insured argued that change in insurability should be assessed at the moment of formation and not when all three conditions are met.
Formation 2389 and effect 2425 are distinct. A contract can be formed, but not effective.
Change in insurability is passive and objective, not suppose to be connected to disclosure (but see Beldent)
Trouble exists where there is a change in insurability in the period after application is accepted (and K is formed 2398) and before first payment is made. This a suspensive condition, meaning Life Ins policy is not effective until all three factors exist at once.
Change in insurability is a matter of proof. Insured should disclose change to ensure policy will pay, but not a requirement of law requiring disclosure. Insurer does bare some risk in the period after acceptance and before first payment.
The obligation to disclose change in insurability ends at formation, and not all the way up to payment of first premium.
Class Notes
case about 2425 CCQ (2516 CCLC) taking effect
March 8, ’77 Application March 9 Med. Exam April Neuralgia May 2-6 Chiropractor May 4 Policy May 6, 2nd increase, payment of $1000 June 9 Hospitalized June 14 Conversion to monthly amount
Question is when did the life insurance take effect? When were the three conditions reunited?
The three conditions never came together. The life insurance never took effect.
Application Acceptance Payment of the premium
When all three conditions are met, you have formation and acceptance at the same time since date of effect is adjusted retroactively
But if there’s a change in insurability after acceptance, the insurance doesn’t take effect
This case has been criticized: it’s been labeled as excessively technical and rigid
Especially by civilian minds. Civil law’s concept of the meeting of minds would argue that the point where the deposit and the acceptance coincide is where both parties intended for the insurance to take effect.
So this idea of the insurance date being adjusted retroactively given that there is no change in insurability and all three elements coincide
This still makes sense because the insurance company is ‘assuming the risk of you aging’. That is the ‘consideration’ that they’re giving.
Suspensive conditions
Once they’re fulfilled, the contract begins to take effect, if everything is honky dory (no change in insurability)
Change in insurability and duty to disclose are two separate concepts
Duty to disclose is at the time of application
Change of insurability is something that may happen prior to the contract taking effect
Beldent v. Sunlife [1997] R.R.A. 939 – CVL
majority judgment is a mistake: An innocent misrepresentation of risk does not negate the definitive policy if the policy has been in effect for over 2 years, even if there is a change in coverage during that time (i.e. the 2 year clock starts ticking on the day the definitive policy takes effect, not on the date of any subsequent changes).
F:
June 88: Beldent and his wife take out a collective life insurance policy for $325,000 to cover a bank loan. The bank loan is used to finance their furniture business.
Sept 88: They seek to increase the policy value from $325 to $500k. The questionnaire asks if there are any health problems. They answer in the negative.
Oct 88: Mrs. discovers she has leukemia but does not disclose it to Sunlife.
Nov 88: Sunlife increases the value of the life insurance policy from $325,000 to $500,000.
20 Dec 91: She dies and owing the bank $500,000.
April 92: Sunlife refuses to dish out the $500,000 and rather pays $325,000. It claims that the health change between the time of the questionnaire and the policy coverage increase negates their duty to indemnify the bank for the full value because their consent to the increase was vitiated by the concealment.
Issue: In other words, does Mrs. change in insurability negate the increase (or change) in the policy?
Held: No (but this would have been different if it were not an increase but the issuance of a new policy).
Reasoning Majority (Beauregard J.): Incorrect and contrary to SCC decision.
False declarations and omissions make the policy null ab initio. However, CCLC 2515 states that if it has been more than two years since the misrepresentation or concealment, it won’t void the contract.
This principle also applies in the case where there is a change in insurability after the signing of the application and before its acceptance with the insuring party.
The original policy had been issued for over 2 years (CCQ 2424) so the 1st policy was in effect even if there was an innocent misrepresentation. Presumption here is that insurance is effectively in place. The question is whether the adjustment is in effect (the increase).
Here, since an omitted fact is not relevant for the insurer after 2 years, an omission here not disclosed also has no relevance if the insured survives two years after the acceptance of the application and the payment of the first premium (this is wrong btw)
Dissent Reasoning (Justice Forget): reminds of the SCC decision
Focused on CCQ 2425 – effective date of life insurance. (cf. Trust Generale)
The majority judgment contradicts CCLC 2516
Change in the insurability of risk prevents the increased amount from coming into effect.
Rule: ignore majority judgment
Comments:
Beauregard criticism: How can this K be saved when there was nothing to be saved? There was no meeting of the minds, as insurability of risk dramatically changed between completing the application and the acceptance.
CCQ 2425 considers the formation/effectiveness.
Beauregard cannot find the effects of a K, where the K has not taken effect.
This case has been followed in Superior Court, so looks like policy will be saved if 2 years have passed since the definitive policy is in place, despite subsequent change in insurability of risk. Contrast this with CCQ 2441 and suicide.
Class Notes ***According to insurance people, Beauregard didn’t really get it right in this case
Facts: B and wife were co-owners of manufacturing store. Took out insurance. Life insurance was part of the guarantee to pay debts.
Aug. ’86 Insurance put into place $325K Sept. ’88 increase of $175K, medical questionnaire, application Oct. ’88 diagnosed w/ leukemia Nov. ’88 new certificate w/ increase issued, acceptance Dec. ’91 Death
Issue: is the $125K increased amount in effect?
CCQ 2424 – 2-year period. Judge says if 2-year period has elapsed, there is no problem whether she said she has leukemia or not. 2 year period is a pro-insured rule but it relates to the misrepresentation and concealment at the point of the application. J. BR conflates two ideas erroneously.
Forge (dissent, apparently the more correct one)
Some particularities relating to insurance of persons
damage insurance: there is also a softening of the sanction of nullity by CCQ 2410 (similar to life insurance, see Ouellete)
you have prorating
there is also an attenuation of the sanction when we talk about misrepresentation of the age of the insured
you have prorating
CCQ 2442. A contract of insurance for funeral expenses whereby a person undertakes, for a premium paid in a single payment or by installments, to provide services or goods upon the death of another person, to pay funeral expenses or to set aside a sum of money for that purpose is null; Only the person who paid the premium or installments or the Autorité des marchés financiers acting on his behalf may bring an action for the annulment of the contract or recovery of the premium.
Regulated by Statute; individual contract is not permitted
Why is that? Because if there is misrepresentation and no indemnity paid, there would be no funeral. This is against public order.
2443. An attempt on the life of the insured by the policyholder entails, by operation of law, cancellation of the insurance and payment of the surrender value; an attempt on the life of the insured by any person other than the policyholder entails forfeiture only with respect to that person's right to the coverage.
Public order argument. Can’t profit from your own crime.
Surrender value = amount accumulated in the policy that can be given when the insured cancels his or her policy
There are some rights in the life insurance contract that are growing as the premiums are being paid
Why do we care about this? Could be savings, could get a loan against, etc.
Creditors are also interested in this.
Should they be allowed to get at this?
The policyholder is the one who takes out insurance and pays the premiums
The insured may be a different person and a beneficiary may be a different person on top of that!
There can also be a subrogated policyholder (in situations where policyholder dies or whatever and can’t continue to pay the premiums)
Only applicable when policyholder and insured aren’t the same person
There are also rules relating to the beneficiary of the insurance policy
Benefits are either:
Revocable
Anybody else
Irrevocable
Spouse
Default in the code:
Writing (not will):
If spouse, irrevocable (w/ consent, can be changed)
Upon divorce policy lapses CCQ 2459
Anyone else, revocable (no consent needed)
***remember default can be derogated from if stipulated
Will:
A designation is always revocable
Where the beneficiary of the policy is a named person, the insurance proceeds go to that person
If the beneficiary is your estate, proceeds go into the state of the deceased
Why would one be preferable over the other?
If Estate, available to creditors if you die with debts
Let’s say, in your Will you leave proceeds to your spouse: revocable (since Will)
Let’s say you change your will later and now leave it to your children: revocable (even if not a Will)
Confederation v Lacroix [1996]R.R.A. 931 (CA) – CVL
Payment to legal heir vs. Beneficiary, liberating of obligation
Facts: Lacroix buys life insurance, and designates his “legal heirs” as beneficiaries, and writes on the side “children”. Lacroix dies, and his will appoints his mother Joane of Arc (JoA) as his executor and legal heir, without any explicit mention that he also wants her to be the legal heir for his life insurance proceeds. JoA submits forms and gets insurer to pay her the indemnity as legal heir. Children realize their slime-bag grandparents stole their money and initiate an action against the insurer to get their money. Insurer pursues JoA to get the money back. Trial judge finds for the children and orders JoA to return the money. Sylvie Veilleux, agent for the insurer, testifies that Lacroix wanted the money to go to his children.
Issue: (1) who is the correct beneficiary: the “legal heirs” or the “children”? (2) Can the oral testimony of Veilleux be used to contradict the written evidence of “legal heirs” as beneficiary? (3) Does the indemnity payment to the legal heirs liberate the insurer from further obligations?
Held: Children; Yes; No.
Reasoning (J.A. Philippon): Designation of Benificiary:
Life Insurance should be paid to the person designated by the titulaire, and where no designation is made it should be paid to the legal heirs. (succession)
CCLC 2543 (CCQ 1445, 2447) does not require beneficiary to be expressly identified, only identifiable. Therefore a named beneficiary is not required.
Ambiguity exists between “legal heirs” and “children” and court is justified in searching for intention of Lacroix. Veilleux is not contradicting the written K (prohibited by CCLC 1234) (CCQ 2863), but is helping the court understand the insured’s intention.
TJ did not err in accepting the evidence of Veilleux. He had just cause in researching the intention of the insured as there clearly was ambiguity between the terms legal heirs and children. Thus, he was correct to conclude that Lacroix wanted the indemnity to be paid to his children.
Insurer argues that only one request for indemnity was made (by legal heirs) and CCLC 2528 (CCQ 2436) requires they pay the indemnity within 30 days.
Also, CCLC 2549(2) (CCQ 2452(2)) says payments made by the insurer in good faith are liberating if they are made to the last known person entitled to it.
The Courts reject the above arguments, and says insurer had all the information necessary to determine that the children were the beneficiaries. The fact they only received 1 request for the indemnity does not release them from the duty of looking in detail at the content of the request. There is an implied obligation that the insurer has an obligation to verify the claims made.
Appellants did not pay to the true beneficiaries and omitted to verify their documents. Without their negligence, the indemnity would have been paid to the proper people. Thus, payment to JoA is not liberating for the Insurer b/c it was not made to the last known heir, regardless of whether it was made in good faith.
Holding: Insurer paid the wrong beneficiary and if they had only reviewed their own documents they would have known the children were the correct beneficiaries.
Ratio: Insurers have an obligation to identify the correct beneficiary within their own records, and indemnity made in good faith to the wrong person does not liberate the insurer from their obligation. Class Notes F: Group insurance: Fills out little card for the employer for the group insurance. In beneficiary, L writes ‘legal heirs.’ For familial relations: he put children. He wants his children as his legal heirs; asks the representative of the policy who told him to just write this so we know that you want them to be your legal heirs. The universal legatee statement said that he leaves everything to his mama. Insurance co. pays it out to Mama. Kids now want the money.
It became necessary to interpret L’s intention as to whom he wanted to get the proceeds of the insurance (whether estate or children). Problem is that he has a will. Added wrinkle was the old rule of proof – you cannot bring other evidence to contradict written evidence (document was everything in those days).
Herities legaux v. enfants. How did this case turn out? Under his will, legal heir was just his mom.
It’s not only what’s written down when it comes to interpretation. His intention was clear based on evidence of insurance agent and ex-spouse. Thus, not solely what’s written on document but one must establish intention.
Insurance co. had not respected 2452. Designations and revocations may be set up against the insurer only from the day he receives them; where several irrevocable designations of beneficiaries are made separately and at different times, they are given priority according to their dates of receipt by the insurer. The insurer is discharged by payment in good faith in accordance with these rules to the last known person entitled to it.
Insurer failed to look at its own documentation
Insurer’s negligence was responsible for the erroneous payout. Otherwise usually payout relieves insurer for liability and are no longer involved in proceeding actions.
Seizure of surrender value of life insurance, CCQ is a complete list of exemptions for rights that can be seized under law
Facts: The respondent policyholder insured her husband’s life in a life insurance policy and designated herself a revocable beneficiary. She had the right to surrender the policy for its cash surrender value pursuant to the terms of the policy. She is in business with her husband and they go into bankruptcy. The trustee in bankruptcy advised the insurer that he was exercising the right to surrender the policy on behalf of the respondent, and that it should therefore resiliate the policy and pay into the bankruptcy its cash surrender value. The insurer complied. Lady (respondent) wants surrender value returned to insurer and policy reinstated. The life insurance policy is not exempt from seizure under QC law (CCQ 2457 and 2458).
Issue: Whether cash surrender value of policy should be excluded from property divisible among creditors in bankruptcy?
Held: [NO]
Reasoning (J Gonthier):
Bankruptcy Act says “the property of a bankrupt divisible among his creditors shall not comprise of (b) any property that is exempt from execution or seizure under the law” s. 67(1)(b).
Here, the trustee is entitled to seize the policy and exercise the surrender right to obtain its cash surrender value. The exemption provisions of the Civil Code of Lower Canada governing life insurance contracts were meant by the legislature to be exhaustive.
CCQ 2457 & 2458 explain what life insurance policies cannot be seized. Neither exemption from seizure applies to respondent, meaning her policy can be surrendered to trustee.
“Here, the respondent’s policy does not qualify under either of the only available exemptions, since under the policy, the respondent is both beneficiary and policyholder and since the designation of the respondent as beneficiary was never made irrevocable, and does not benefit from the presumption of irrevocability of art. 2547 C.C.L.C. “
“the respondent's policy fails to qualify for either exemption. For a policy to be exempt from seizure under art. 2552 (CCQ 2457), the beneficiary must be the consort (or descendant/ascendant) of the policyholder. Here, the beneficiary is the consort not of the policyholder, but of the life insured (the individual whose life is insured). Nor does the respondent qualify for the exemption provided in art. 2554 (CCQ 2458). She did not designate herself the irrevocable beneficiary of her own policy.”
Ratio: Life Insurance can be seized to satisfy creditors in bankruptcy where it does not satisfy exemption clauses of 2457 & 2458.
Comments:
2457.Where the designated beneficiary of the insurance is the married or civil union spouse, descendant or ascendant of the policyholder or of the participant, the rights under the contract are exempt from seizure until the beneficiary receives the sum insured.
2458.A stipulation of irrevocability binds the policyholder even if the designated beneficiary has no knowledge of it. As long as the designation remains irrevocable, the rights conferred by the contract on the policyholder, participant or beneficiary are exempt from seizure.
Relevant CCLC articles: 2547, 2552, 2554
Class Notes
there are many things exempt from seizure. The question is how to know what is exempt from seizure.
SCC states that 2457 & 2458 CCQ constitute the entirety of the law of seizability of life insurance proceeds under the code.
In this case, the trustee in bankruptcy is attempting to cash in the life insurance policy.
Here we have the wife as the policyholder, her husband the insured. Value of policy was $300K. Wife was also the beneficiary. The wife and the husband when personally bankrupt. Trustee in bankruptcy wanted to force the redemption of the insurance policy. Wife argues that this policy is exempt from seizure.
Is she the spouse of the policyholder? No, she is the policyholder.
Doesn’t fit into 2457
No stipulation of her own irrevocability as beneficiary.
