People purchase home, life, and automobile insurance to protect themselves and their families from financial hardship after an accident, death, or property damage. Unfortunately, sometimes there is a conflict between the insurance company and the insured in terms of what should or will be covered in the event of a claim. In a recent Ontario case, an insurance company refused to honour a life insurance policy after it was discovered the deceased had criminal incidents in their past that had not been disclosed at the time the coverage was purchased. The question then became whether the criminal history was ‘material’ to the insurance policy, and therefore enough to void the coverage.
Applicant Answers “No” to Criminal History Question
The applicants were common-law partners who attended a local insurance company to purchase car insurance. While there, they impulsively decided to also apply for life insurance coverage. As part of the standard application form, they had to answer the following question:
Within the past 5 years have you had your driver’s license revoked or suspended, or have you been found guilty of impaired driving, or any other alcohol, criminal or drugs related offences or are there any such charges pending?
Both applicants answered in the negative to the question, but as part of their application they authorized the insurance company to access information about any “record of criminal activity”. Their applications were approved on the spot, and the deceased, KW, was issued a life insurance policy with $250,000 in coverage. He named his common-law partner, AD, as the beneficiary.
Just under two years later, KW passed away. AD made a claim as the beneficiary of KW’s life insurance policy. While conducting a search of the deceased, an employee of the insurance company discovered articles referencing outstanding charges against KW. After further investigation, the insurer was able to locate court documents showing KW had been charged with human trafficking and assault in 2015; charges that remained pending when KW applied for insurance coverage. A week after his coverage had been approved, KW pleaded guilty in court and was sentenced to 12 months probation.
Based on this discovery, the insurer informed AD that it would be denying coverage on the basis that KW had misrepresented or failed to disclose a “material fact” in his application. AD then brought a claim against the insurer for breach of contract.
“Material Fact” and Insurance Coverage
The Insurance Act imposes a duty on all applicants to disclose “every fact within the person’s knowledge that is material to the insurance…”. The purpose of the section is to ensure an insurance provider is aware of all relevant information before deciding whether to issue a policy. For example, a person applying for life insurance would be expected to disclose whether they had a terminal illness.
The obligation extends beyond answering questions posed in an application. If the applicant is aware of material information relevant to the policy, they have an obligation to disclose it even if it is not the subject of a specific question on the application.
However, the question becomes what is ‘material’ to an application? The onus to prove the omitted information was material to the life insurance policy falls to the insurer. In this case, the insurer relied on an internal memo which noted KW’s conviction and stated “[b]ased on the criminal history provided, this policy would not have been approved had the history been fully and accurately declared. Coverage would have been denied”.
The Court noted that the memo simply identified the criminal history, but made no mention as to why or how the criminal charges were material to the life insurance coverage. Had the memo gone into detail on how criminal charges may increase the risk of morbidity or disability, the insurer may have been able to make a case for materiality. As it stood, however, there was no evidence the charges had any impact on KW’s life expectancy or health. As a result, the Court found that the criminal charges were immaterial to the coverage.
While AD had requested punitive damages in addition to an order that the insurer honour the policy, the Court declined. There was no evidence the insurer had acted in bad faith in denying coverage, and the Court did not award punitive damages. However, the insurer was ordered to honour the insurance contract and pay AD the full coverage amount of $250,000.
Contact Milosevic Fiske LLP For Exceptional Legal Representation in Insurance Related Matters
The highly experienced Toronto insurance lawyers at Milosevic Fiske LLP represent clients with insurance-related legal issues. We understand the importance of swift, resourceful action where insurance matters are involved. We can act quickly to protect our clients and help ensure that they receive maximum compensation for their injuries or harm suffered. To learn more about how we can help you call us at 416-916-1387 or contact us online.