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Duty to Disclose when applying for Life, Long Term or Critical Illness Insurance

Our law firm receives a lot of calls from people who have been denied Life Insurance, Long Term Disability Insurance, Mortgage Insurance and Critical Illness claims.

Some of these policies are group policies which are offered through an employer.

Sometimes these are private policies which are purchased from an insurance broker or from a bank.

This Toronto Injury Lawyer Blog post will focus more on those private policies which individuals purchase on their own. The thing with private policies is that you need to apply, and qualify for coverage. Monthly premiums vary depending on age, health, disability history, lifestyle choices and other risk criteria.

These risk criteria are examined in detail by an underwriting department at the insurance company.

These underwriters have very important jobs. They have to assess the risk of insuring individuals and put a dollar figure on that risk. Premiums are largely determined based on the risk of insuring the individual and the level or amount of insurance which the individual is seeking.

A life insurance policy which pays out a $50,000 benefit will be less expensive than a life insurance policy which pays out a $5,000,000 benefit.

The same way that a life insurance policy for a 9 year old person will be less expensive than a life insurance policy for a 99 year old.

There are so many factors which go into underwriting that it’s hard to understand. This is why insurance companies narrow down these underwriting criteria based on a set of questions when applying for insurance.

It’s very important for a person who is applying for insurance to tell the truth when applying for insurance. Otherwise, an insurance company cannot properly assess risk and set their rates. We do not want to encourage lying, or willingly omitting information in order to get better insurance rates.

In fact,  Section 183(1) of the Insurance Act imposes a duty on the insured to disclose in their application “every fact within the person’s knowledge that is material to the insurance…” This legislative obligation is proactive, reflects well-established common law, and is based on sound policy: Silva v. Sizoo et al., [1997] O.J. No. 4910 (G.D.) at para. 7. Without full and frank disclosure of all facts material to the life insurance risk, the insurer cannot make an informed decision as to whether on not to approve a policy. 

So what happens when someone applying for insurance does not disclose the truth; or omits certain facts about their history?

In 80%-95% cases we have seen, these cases are denied and those denials are often upheld by the Court.linkedin-2-300x300

If you fail to disclose your high blood pressure and then you die of a heart attack? Benefits Denied.

If you fail to disclose a cancer test and then can’t earn an income because of cancer? Benefits Denied.

History of MS, stroke, Grave’s Disease, cancer etc. and then can’t work? Benefits Denied.

Taking anxiety or depression medication but fail to disclose to your insurer? Benefits Denied. 

This is why the recent case of Estate of Kareem Watson et al v. RBC, 2021 ONSC 5305 caught our eye.

In this case common law partners Kareem Watson and Amanda Doucette applied for life insurance at an RBC Bank Branch. In applying for insurance, Mr. Watson answered “No” to question 5(a) on the Application (“Question”), which asked whether:

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?

Mr. Watson died. As the named beneficiary, Ms. Doucette filed a claim for the death benefit of $250,000. She provided all the required supporting information and answered RBC’s questions truthfully to the best of her knowledge.

After reviewing this information, an internal RBC email stated “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.”
RBC denied coverage on the basis that Mr. Watson misrepresented or failed to disclose a material fact in his Application. RBC returned Mr. Watson’s premiums and denied further liability to Ms. Doucette. Benefits Denied.
But! Here was the shocker for everyone at my law firm. The Judge approved benefits despite the failure to disclose Mr. Watson’s criminal charges!
RBC has not established that Watson’s omission or misrepresentation in his Application was a material to insurance risk. It shall pay Doucette $250,000 in damages, which is equivalent to the death benefit under the Policy.
Watson clearly had knowledge of his outstanding criminal charges as of the application date. He had attended numerous court appearances to move the matter along.

Given that Watson did not disclose the criminal charges in his Application, the outcome is the same whether he omitted or misrepresented the material fact by incorrectly answering the question on the Application. In either case, the narrow issue before me is whether Watson’s outstanding criminal charges were “material to insurance” such that he was required to disclose them during the application process.

In this case, to establish materiality, RBC relies on an unsworn, unsigned, two-page internal Memorandum in which “Brandy McCully,” manager in corporate underwriting, writes that: “Based 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.” In support of her conclusion, Ms. McCully notes that Watson was charged and convicted of a criminal offence.

Because RBC did not make Ms. McCully available for cross-examination, Doucette did not have the opportunity to challenge her on her conclusions. RBC’s failure to provide an affidavit from Ms. McCully is a breach of Rule 39.01. In short, the Memorandum is hearsay and cannot be afforded any weight.

RBC has not convinced me that Watson omitted or misrepresented a material fact in his Application for insurance. RBC did not have lawful authority to void the Policy.

I suspect that had RBC presented a sworn Affidavit from Ms. McCully; that their defense would have been much stronger. But instead, it’s a strong and surprising win for the Plaintiffs. I say surprising because it cannot be denied that the Plaintiff did not answer truthfully to the question in relation to the on going criminal charges. Had RBC known, at the very least they would likely have increased policy premiums or send the application for further underwriting to investigate those charges. Whether or not the charges are material to a life insurance policy is subject to debate. But I suspect there is underwriting evidence to suggest that this would place the applicant in a higher risk profile which would impact premiums.





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