The death of an insured during the cancellation period – more than just bad timing!

The usual interpretation of contracts, which looks to the intention of the parties, is not in play when interpreting s. 5 of the Fair Practices Regulation, Alta.Reg. 128/2001.

Insurance law – Life insurance – Interpretation of policy – Terms of policy – Beneficiaries – Conversion – Practice – Summary judgments – Leave to appeal

Thomson v. Ivari, [2023] A.J. No. 1341, 2023 ABCA 369, Alberta Court of Appeal, December 18, 2023, F.F. Slatter, M.G. Crighton and W.T. deWit JJ.A.

The insurer appealed a summary trial decision where the court held that a beneficiary of a life insurance policy could cancel the conversion of a policy during the 10 day cancellation period when the insured died during that period. This finding allowed the beneficiary to revive the prior term policy and receive an increased death benefit.

The beneficiary owned a 10-year term life insurance policy covering the life of her estranged husband. The death benefit was $1.3 million and was renewable and convertible. As the policy was about to expire, the beneficiary opted to convert the policy to one with a lower premium which reduced the death benefit to $400,000. The policy had a 10-day cancellation period during which the beneficiary could return the converted policy for cancellation and render it void as of the issue date.

The insured passed away during the 10-day cancellation period. The beneficiary exercised her option in the cancellation attachment to claim the higher death benefit.

The insurer denied the claim, contending that cancelling does not revive the term policy. The Court of Appeal found that the language of the Cancellation Attachment was unambiguous and unequivocally stated that the beneficiary was allowed to cancel the converted policy at any time within 10 days after receipt of that policy. The court found the cancellation attachment constituted a standard form insurance contract, and s. 5 of the Fair Practices Regulation, Alta.Reg. 128/2001 permitted the beneficiary to rescind within the 10-day period.

There was a fortuitous and unpredictable risk about the life of the insured during the 10-day cancellation period. The insured might survive the 10 days without an event, or, suffer a life altering change to their health, or even die. Which of these fortuitous and unpredictable events actually occurs represents the risk underlying the policy. During the 10-day cancellation period, the insurer is essentially at risk that there might be a material change in the insured’s health. The imposition of that risk on the insurer is inherent in the 10-day cancellation right. However, the fact that the insured might die within the 10-day period, as opposed to shortly after its expiry, does not materially alter the nature of the risks being insured against.

This case was digested by Jaeda Lee, 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 Jaeda Lee at jlee@harpergrey.com.

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