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Insurance - Material Disclosure. Costanza v. Desjardins Financial Security Life Assurance Company
In Costanza v. Desjardins Financial Security Life Assurance Company (Ont CA, 2023) the Court of Appeal considers the insurance law of material disclosure, here regarding life insurance:[24] It is helpful as context for the issues in this appeal to start with the statutory provisions and principles applicable to the duty to disclose placed on a person applying for insurance and to incontestability once the policy has been in force for two years or more. None of these basic principles are in dispute between the parties.
[25] It is well-established that a person applying for insurance has a duty to disclose to the insurer all facts within the person’s knowledge that are material to the insurance. The duty is not only an obligation on the applicant for insurance not to misrepresent their situation, but also a positive obligation to volunteer information which a reasonable[1] insurer would consider relevant to assessing the risk. The duty to disclose applies even in the absence of questions on a given subject from the insurer, although the absence of questions may be evidence that an insurer does not consider a fact to be material: Gregory v. Jolley (2001), 2001 CanLII 4324 (ON CA), 54 O.R. (3d) 481 (C.A.), at paras. 31-32; Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388, 249 O.A.C. 234, at paras. 51-52.
[26] Part V of the Insurance Act governs life insurance. Sections 178 to 189.1 address conditions governing formation of the insurance contract. Section 183 codifies the duty of disclosure on an applicant for insurance at the time of the application (and at the time of some subsequent applications to vary an insurance contract) as well as the consequences of failure to disclose or misrepresentation. Section 183 provides as follows:Duty to disclose
183 (1) An applicant for insurance and a person whose life is to be insured shall each disclose to the insurer in the application, on a medical examination, if any, and in any written statements or answers furnished as evidence of insurability, every fact within the person’s knowledge that is material to the insurance and is not so disclosed by the other.
Failure to disclose
(2) Subject to section 184 and subsection (3) of this section, a failure to disclose, or a misrepresentation of, such a fact renders the contract voidable by the insurer.
Failure to disclose, application for change, etc., in contract
(3) A failure to disclose, or a misrepresentation of, a fact referred to in subsection (1) relating to evidence of insurability with respect to the following kinds of applications renders the contract voidable by the insurer, but only in relation to the addition, increase or change applied for:
1. For additional coverage under a contract.
2. For an increase in insurance under a contract.
3. For any other change to insurance after the policy is issued. [27] Where an applicant for insurance makes a material misrepresentation or fails to disclose material information, the insurance contract is voidable at the option of the insurer.
[28] However, the Insurance Act limits voidability where the policy has been in effect for two years or more during the lifetime of the insured. Section 184(2) provides as follows:Incontestability, general
184 (2) Subject to subsection (3), where a contract, or an addition, increase or change referred to in subsection 183 (3) has been in effect for two years during the lifetime of the person whose life is insured, a failure to disclose or a misrepresentation of a fact required to be disclosed by section 183 does not, in the absence of fraud, render the contract voidable. [29] Thus, where a policy has been in effect for two years or more during the lifetime of the insured, if the insurer seeks to have the policy voided on the basis of material misrepresentation or material non-disclosure, the insurer must prove on a balance of probabilities that the misrepresentation or non-disclosure was made with the intent required for civil fraud: Gregory, at para. 15. . Mohammad v. The Manufacturers Life Insurance Company
In Mohammad v. The Manufacturers Life Insurance Company (Ont CA, 2020) the Court of Appeal considered two statutory provisions in the Insurance Act related to disclosure omissions that might vitiate an insurance contract:[8] In our view, the motion judge made a palpable and overriding error in finding that the deceased’s failure to reveal his past activities did not constitute a failure to reveal material facts that vitiated the policy. We begin with s. 183(1) of the Insurance Act, R.S.O. 1990, c. I.8, which reads:An applicant for insurance and a person whose life is to be insured shall each disclose to the insurer in the application, on a medical examination, if any, and in any written statements or answers furnished as evidence of insurability, every fact within the person’s knowledge that is material to the insurance and is not so disclosed by the other. [9] The past actions of the deceased were material to the risk that he posed for the purpose of having his life insured. On this point, the motion judge’s reliance on the decision in Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388, 249 O.A.C. 234, leave to appeal refused, [2009] S.C.C.A. No. 303, is misplaced. The materiality of the unrevealed information in Sagl, a fire insurance case, is of an entirely different kind than is the case here. There the insurer made no inquiries about information related to the ownership of the property, which it knew or should have known existed, such that the trial judge was entitled to infer that this information was not material. Here there is no suggestion that the appellant ought to have known that the information related to the deceased’s past existed, and therefore cannot be faulted for not having inquired into it.
[10] The motion judge also erred in relying on the absence of questions in the application form as disposing of the deceased’s obligation to reveal material facts. It is a principle of long standing that an applicant for insurance has an obligation to reveal to the insurer any information that is material to the application: Carter v. Boehm (1766), 3 Burr. 1905 (Eng. K.B.). This principle was stated by Morden A.C.J.O. in Vrbancic v. London Life Insurance Co. (1995), 1995 CanLII 1055 (ON CA), 25 O.R. (3d) 710 (C.A.), at p. 727:The trial judge also appears to have held that simply giving full answers to the questions of the insurer's agent amounted to full disclosure. This is not necessarily so. “As a general rule the fact that particular questions relating to the risk are put to the proposer does not per se relieve him of his independent obligation to disclose all material facts”. [Citations omitted.] [11] The deceased knew that his past activities were relevant to his application for life insurance. Indeed, shortly after he applied for the life insurance, the deceased filed an affidavit in his immigration proceedings in which he said that his life would be in danger if he were to be deported to Israel. He was well aware that his past activities, coupled with his illegal entry into Canada, put him at serious risk of physical harm. It is clear to us that the deceased intentionally hid his past activities from the appellant, just as he hid them from the Government of Canada when he sought entry to this country.
[12] Having concluded that there was a failure to reveal a material fact by the deceased, the issue is then whether that withholding was fraudulent. Section 184(2) of the Insurance Act provides that:[W]here a contract, or an addition, increase or change referred to in subsection 183 (3) has been in effect for two years during the lifetime of the person whose life is insured, a failure to disclose or a misrepresentation of a fact required to be disclosed by section 183 does not, in the absence of fraud, render the contract voidable. [13] Our conclusion that the deceased intentionally withheld this information is sufficient to establish fraud.
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