As people move through the stages of life, there will be plenty of times when they are given forms or contracts to sign. For many people, having to carefully review a contract or policy before signing it is an unrealistic expectation and as such, they sign without careful review. Of course, as estates and trusts lawyers, it’s our job to remind our clients (and our readers) that it’s important to understand what you’re signing before putting pen to paper. In a recent decision from the Ontario Superior Court of Justice, we meet a widow who ultimately succeeded in claiming a life insurance payout, but had to pursue litigation in order to have a bank award her money after she failed to answer one of the application questions honestly.

Couple signs life insurance policy

In 2016 the plaintiff and her husband visited the branch of the defendant bank. They were common-law partners who originally wanted to purchase auto insurance, but decided to each purchase a life insurance policy in addition.

One of the questions on the 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 plaintiff’s partner checked no to this answer and the two left with auto insurance as well as two life insurance policies for $250,000 each.

Bank investigates insured’s background

The plaintiff’s partner died two years later. The plaintiff was the beneficiary of the life insurance policy and submitted to collect the benefit of $250,000.

It was at this time that the bank began to conduct an online search on the deceased. The search revealed news articles from 2014 that referenced outstanding criminal charges against the deceased, who eventually plead guilty to human trafficking and assault. He received a suspended sentence and was placed on 12 months of parole in 2016.

The bank wrote to the plaintiff to advise her that it would not have approved the life insurance policy had the deceased been forthright about his criminal past. As such, they returned the deceased’s premiums but denied any further liability under the plan.

Did the deceased’s misrepresentation void the insurance policy?

The court found that the Insurance Act creates a positive obligation for people to disclose questions on an application. This includes innocent non-disclosure of any material fact. The court found that while the question on the application was not clearly worded, the deceased still had a positive obligation to disclose all material facts. If this omission was one of a material fact, it would have triggered the bank’s right to void the contract and rescind the policy. However, the court had to determine if a material fact had been hidden.

The court stated that materiality is a question of fact assessed from the perspective of the insurer, though it is an objective question not related specifically to the insurer involved in the dispute.

While the bank provided the court an internal memorandum, in which a manager states the deceased’s criminal history would have voided the contract, the memorandum failed to explain why. Counsel for the bank could not provide reasoning when asked. This led the court to conclude that the omission was not once concerning a material fact.

The court stated that had the question been asked more clearly on the application, the entire situation could have been awarded. The plaintiff was awarded damages of $250,000, equal to what the plaintiff would have received under the policy.

Contact the experienced estate litigation lawyer at NULaw in Toronto to learn how we can protect your interests and achieve the best possible resolution of your will dispute. Contact us online or at 416-481-5604 to book a consultation today.

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