Criminal activity was not material to life insurance risk

Insurance law – Life insurance – Criminal offences – Misrepresentation in obtaining insurance – Material change in risk – Damages – Costs in lieu of punitive damages

Watson Estate v RBC Life Insurance Co of Canada, [2021] O.J. No. 4127, 2021 ONSC 5305, Ontario Superior Court of Justice, July 30, 2021, R.J. Mandhane J.

The insurer voided the deceased’s life insurance policy after he passed away on the basis that his failure to disclose his pending criminal charges in his application was a failure to disclose a material fact. Materiality is a question of fact that is assessed from the perspective of the insurer.  The onus is on the insurer to establish that the omitted fact was material to insurance.  The test for the insurer was to show that the omitted fact, if properly disclosed, would influence a reasonable insurer to decline the risk, to accept a different risk, or to charge a higher premium.  The test is an objective one.  The insurer relied only on an internal memo which was entirely conclusory in nature and offered no supporting analysis or clear information about how the pending criminal charges were material to determining the deceased’s eligibility for life insurance or evaluating his insurance risk.  The insurer failed to convince the court that the deceased omitted or misrepresented a material fact in his application for insurance and thus did not have lawful authority to void the policy.  Punitive damages were not awarded but full-indemnity costs were awarded on the basis that the insurer’s conduct was heavy-handed in all the circumstances.

This case was digested by Dionne H. Liu, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Dionne H. Liu at dliu@harpergrey.com.

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