When people purchase life insurance, they usually do so with the goal of feeling secure in knowing that their loved ones will be protected financially in the event they pass away. It’s important to remember that when filling out insurance forms or contracts, any misrepresenting information when applying for insurance can lead to a loss of benefits, or as we see in a recent decision from the Ontario Superior Court of Justice, it can lead to a difficult time in receiving an insurance payout.

Couple applies for life insurance

The applicant and her husband visited a branch of the respondent bank to purchase auto insurance. While there, they talked to a representative about their needs and made the decision to apply for life insurance as well. One of the questions on the life insurance application asked,

“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?”

The husband answered “no” to the question, and the insurance contracts were approved. The couple paid their dues on time up until the husband’s death in July 2018.

Bank denies life insurance payout

The applicant filed a claim for the death benefit under her husband’s life insurance policy. An online search conducted by an employee of the respondent uncovered an outstanding criminal charge against the husband. It turns out that he had been charged with human trafficking and assault in 2015. Those charges were outstanding when the insurance application was made. Eight days after applying for life insurance he plead guilty to assault and received a suspended sentence.

The bank told the applicant that “based on the criminal history provided, this policy would not have been approved had the history been fully and accurately detailed. Coverage would have been declined.” The bank returned the applicant’s premiums and denied further liability. The applicant responded by suing the bank for breach of contract.

Should the life insurance policy have been honoured?

The main issue before the court was whether the husband omitted or misrepresented a “fact material to insurance.” This term is established in the Insurance Act, which states that “every fact within the person’s knowledge that is material to the insurance” shall be disclosed. Even if a question is vague, there is a positive obligation on the part of the person applying for insurance to disclose anything that would be considered material.

In this case, the husband certainly had knowledge of his outstanding criminal charges, and he did not disclose them in the application.

The onus then turned to the insurer, who has to establish that the omitted fact was “material to insurance.” In this case, the insurer was not able to provide any evidence that they would have denied coverage had disclosure been made, meaning they did not have lawful authority to void the policy. As a result, the court awarded the applicant with damages equal to what she would have received under the payout.

If you have been appointed an executor, the estates lawyers at Derfel Estate Law can advise and guide you on all aspects of estate administration, including determining whether or not probate is required, or assisting you if it is. Call us at 416-847-3580 or contact us online to schedule a consultation.