The decision in Croteau (Succession de Roy) c. TD Compagnie d’assurance-vie, 2020 QCCS 3539, rendered on October 21, deals with the nullity of a contract of insurance of persons for misrepresentation and/or concealment. The Court reiterated that the insurer, represented by RSS, was entitled to presume that the declarations of the insured were true, and that it did not have to search its archives to look for information that could have been concealed.
The facts
In 2012, Stéphane Roy [the Insured], along with his spouse, takes out a mortgage with the Toronto Dominion Bank [Bank]. At the Bank’s suggestion, he completes an application for a Critical Illness and Life Insurance Mortgage Loan Insurance with TD Life Insurance Company [TD] in which he answers four general questions about his health. Since he answers “Yes” to one of the questions, he is asked to respond to more detailed questionnaire in which he states that he is a member of the armed forces, has high cholesterol and suffers from anxiety and depression related to post-traumatic stress disorder. Given these problems, TD sends him an even more detailed questionnaire which, however, he does not return. Having received no reply, TD closes the file.
In 2016, following his separation, the Insured takes out a new mortgage with the Bank, and takes out life insurance to cover his mortgage balance. Once again, he is asked to fill in a questionnaire where he again answers “yes” to one of four health-related questions. He also takes part in a telephone interview to clarify his health status, during which he reveals that he suffers from anxiety and is “post-traumatic” after having served in Afghanistan. He also reports problems with osteoarthritis.
In response to a specific question, the Insured denies receiving disability benefits and affirms having no suicidal thoughts. However, he had mentioned in various personal credit applications filed with the Bank that his income included disability benefits.
He also failed to disclose the name of his new attending physician and did not mention that he was being treated for refractory depression, or that he suffers from chronic diarrhea of unknown cause. Finally, he fails to disclose results of several tests and examinations conducted in the previous months that revealed enzyme levels three to four times higher than average, and moderate to severe hepatic steatosis with minimal aortic atheromatosis.
In 2017, the Insured dies accidentally. The estate claims the insurance indemnity provided for in the contract, i.e. the repayment of the balance of the mortgage. After reviewing the insured’s medical file, the insurer denies coverage, considering the failure to disclose relevant elements of information. TD argues that the unreported facts were material to its assessment of the risk and that it is entitled to cancel the insurance policy ab initio.
The estate filed a claim for the insurance indemnity before the Superior Court. The Court conducted a two-step analysis: first, has there been any misrepresentation or concealment on the part of the Insured? If so, are they material?
It should be noted that had the policy been in force for over two years when the Insured passed away, the Court would have had to consider whether the misrepresentation or concealment was fraudulent (art. 2424 C.C.Q.).
Was there misrepresentation or concealment?
The Superior Court held that by his incomplete or erroneous answers, the insured deprived TD “of the opportunity to conduct the examinations necessary to make a fair assessment of the risks posed to it by the insured’s state of health” [para. 67; our translation]. The judge notes that the insurer is not required to conduct an exhaustive investigation and to question the truthfulness of the insured’s statements.
Interestingly, the plaintiff argued that some of the undisclosed information was known to the insurer, since the Insured had reported it in 2012, as well as in the financial information provided to the Bank. Citing Falduto v. Compagnie d’assurance vie Federated du Canada, 2008 QCCA 438, the judge notes that article 2408 C.C.Q. requires the policyholder to answer the questions asked, even if the circumstances are known or should be known by the insurer, and that the insurer does not have to look in its archived files, especially since the situation may have changed over time.
The Court further notes that the Bank and TD are separate entities, even though one may sometimes act as agent for the other, not to mention that the insurer is responsible for processing medical information and performing the risk analysis, and that it is not within the Bank’s authority to communicate, on its own initiative, information that it has received.
Was the misrepresentation or concealment material?
After concluding that there were misrepresentations in answer to clear questions, the Court had to decide whether the insurer had proven that the misrepresentations or withholdings would have influenced a reasonable insurer in setting the premium, assessing the risk or deciding to accept it. The insurer’s position must be based not only on its own practices, but also on the insurance market for the same type of product.
In this case, TD’s underwriting manager and an underwriting expert testified that they would have refused to cover the risk.
Credit insurance is based on sharing the risk among all insureds. Premiums fluctuate not according to the qualification of the risk, but only according to the amount of the loan. Except in exceptional cases, the insurer will tolerate a condition known as a premium surcharge condition that can amount to +100, failing which the application will be refused. Each condition deemed important has a risk factor score. In this case, the combination of the insured’s own risk factors led to a premium surcharge vastly exceeding the threshold acceptable to an insurer. Moreover, since the cause of the chronic diarrhea was unknown, the insurer would normally have deferred its decision until the situation was clarified.
Accordingly, the misrepresentations and concealments must be considered material: had the facts been fully disclosed, the insurer would not have accepted to provide the insurance.
In light of the foregoing, the Court declared that the mortgage insurance purchased by the insured was null and void ab initio.
Conclusion
The insurer’s burden in matters of nullity of a life and health insurance policy remains heavy however, as this decision rightly illustrates, the insurer does not have to make parallel inquiries and is entitled to rely on the answers given to specific questions put to the insured during the underwriting process. As it is often the case, each situation depends on its own facts.