1. Basic Insurance Theory

I. INTRODUCTION

Definition  BCIA s. 1: “insurance” means the undertaking by one person to indemnify another against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed, or to pay a sum of money or other thing of value on the happening of a certain event

Purpose of Insurance  Mechanism for managing risk  To protect financial interests

Government as Insurer  Why be involved? o Adequate protection for specific risks o Eliminating/reducing socio-economic inequalities o Cost spreading re: vital services  How to be effective? o Mandatory insurance o Subsidization through general tax revenues

Elements of an Insurance Contract  Undertaking by one person (insurer)  To indemnify another (named and unnamed insured) o Assured=purchaser, insured=person whose life is insured, beneficiary=receiver of insurance money  for an agreed upon consideration for the promise of indemnity (premium)  from the loss or liability for insured event or subject matter o indemnity: undertaking to compensate for actual losses . if no loss, then no coverage o non-indemnity: provide for the payment of a specified amount on the happening of a particular event . no need to prove the loss  the occurring of which is uncertain

Principles of Insurance Law  Duty of utmost good faith (both parties)  Fortuity- random losses o Uncertainty re which insured will suffer losses or when they will occur  Indemnity o Recovery limited to insured’s actual losses except in non-indemnity insurance contracts  Consumer protection  Compensation o For victims, especially in third party policies Ensuring Solvency  Solvency of insurers essential to loss spreading  Reinsurance: helps spread risk of loss, insurers transfer some risk to other insurers o No privity of contract between insured and re-insurer o Insured has no priority over other creditors (Re Northern Union Insurance Co) . Even if money is paid to the insurer from the reinsurer based on a loss that the insured has suffered, it does not go directly to the insured

2. Distinguishing Insurance from Wagering  Wagering and gambling prohibited: BCIA s. 10  With wagering, risk arises from speculation of outcome of event o Insured has no insurable interest in subject matter of contract prior to placing the bet o Moral hazard: no insurable interest=more likely to engineer loss o Note: no moral hazard in weather-dependent promotions so not considered wager

3. Regulation of the Insurance Industry

Why regulate?  Power imbalance  Ultimate goal: consumer protection and confidence in insurance system

How is it regulated?  Legislation controls formation and operation of insurance companies to ensure solvency  Common law regulates the content and enforceability of insurance contracts o Terms and conditions o Obligations of parties to contract o Qualifications and responsibilities of intermediaries

Jurisdiction for Regulating  Provincial jurisdiction to regulate insurance contracts derived from 92(13) property and civil rights  Federal jurisdiction to legislate with respect to incorporation of national insurance companies derived from federal power to create federal corporations  federally incorporated companies are subject to provincial legislation pertaining to the operation of the insurance industry (Canadian Indemnity Co. v. BC)  provincially incorporated companies subject to federal legislation on subject within federal jurisdiction (i.e. bankruptcy and insolvency) (Ontario v. Policy Holders of Wentworth Insurance Co) o priority rules of federal Winding Up Act supercede priority provisions in provincial Insurance Act o within its own areas of legislative jurisdiction the federal government can pass laws which incidentally impact upon the provincial insurance companies’ insurance operations  banks are exempt from provincial insurance act licensing requirements where insurance operations are merely incidental to ordinary bank operations (Bank of Nova Scotia v. Canada) o BC Insurance Licensing Exemptions Regulations: provincial regulation inapplicable where insurance is incidental to ordinary business o However, chartered banks offering insurance products as loan collateral are not exempt from provincial licensing requirements (Canadian Western Bank v. Alberta)

Insurance Regulation and the Charter  Generally, insurance is a private contract between individuals so the Charter is not applicable o However, insurance legislation and regulation must be consistent with Charter values (Miron v. Trudel)  Discriminatory insurance practices and policies are exempt from the application of human rights legislation if based on reasonable and bona fide distinctions (BC Human Rights Code s. 8) o Relevant factors: . Type of policy . Nature of discriminatory practice . Whether distinctions are legitimate or unavoidable  Burden of proof is on insurer making distinctions o A life insurer is entitled to assess risk based on applicant’s health and can deny service to unreasonably high risk applicants (Nova Scotia Human Rights Commission v. Canada Life) o A discriminatory practice is reasonable if it is based on a sound and accepted insurance practice and there is no practical alternative (Zurich Insurance Co. v. Ontario Human Rights Commission) . Dissent: no evidence that there was no practical alternative

II. NATURE OF INSURANCE CONTRACTS

1. Indemnity and Non-Indemnity

Indemnity Insurance:  Limits insured’s entitlement to actual losses on happening of insured-against peril o May recover less than value of actual loss if have to pay deductible o May recover more than actual loss if replacement cost endorsement o Requires proof of loss and value of loss  Presumes that the insured has a stake in the subject-matter of the insurance, and that the loss can be accurately valued or quantified  Subject to intentions of contracting parties: can contract out of it  Subrogation unless specifically excluded

Non-Indemnity Insurance  Insured recovers predetermined amount on happening of insured peril  No proof of financial loss required  No right of subrogation subject to terms of contract (Mutual Life v. Tucker)

Determining Nature of Insurance  Every insurance contract presumed to be one of indemnity, unless otherwise specified (Glynn v. Scottish Union) o However, if subject matter of insurance is not capable of financial quantification, no presumption of indemnity  Terms of contract must be examined to determine whether or not it is a contract of indemnity- classification by the parties is not enough  Subrogation is a corollary of the indemnity principle o Absence of an explicit subrogation provision does not preclude right of subrogation (Gibson v. SunLife)  Insurance contracts for payment of fixed sums on the happening of a fixed event (i.e. life, accident & sickness) are generally non-indemnity (Glynn v. Scottish Union)  Right of subrogation only arises once the insured has been fully indemnified for his loss (Mutual Life Assurance v. Tucker)  Long term disability benefits are presumptively indemnity contracts unless this is clearly not the intention (Wilson v. Great West Life) o Where periodic benefit is a proportion of pre-disability income, more likely to be considered income replacement and therefore indemnity  No-fault benefits will be reduced to reflect benefit entitled to under other insurance schemes (BC Insurance (Vehicle) Regulations, ss. 81-83)- this is to avoid windfall by the insured

2. Classification of Insurance Contracts

Object- or Peril- Defined  Object-defined: characterized by object of policy i.e. aircraft, automobile  Peril-defined: characterized by insured risk i.e. accident & sickness, fire o Most provincial legislation classifies insurance according to risk

Purpose of Classification  Specific terms, principles and requirements for particular types of insurance contracts o i.e. limitation periods- s. 23 of BCIA . actions must be brought within 2 years of the date that the insured knew or ought to have known that the loss or damage occurred . failure to give notice of the limitation period suspends running  BCIA s. 8: general provisions apply to all insurance contracts except life, accident & sickness, reinsurance, and misc.

Classifying Multi-Risk Policies  Absent specific legislative provisions to the contrary, multi-risk policies are governed by the general part of the legislation  BCIA s. 3: contracts must be consistent with the Act o Contracts cannot include stricter terms to the detriment of the insured (KP Pacific Holdings v. Guardian Insurance Co) o Act provides minimum protection, but insurers can specify a longer limitation period in the contract (Sander v. SunLife, BCIA s. 6(2))

III. INSURABLE INTEREST

1. Character and Timing of Insurable Interest  Insurable interest is the nexus between the insured and the object of the insurance, and it is required for a valid insurance contract o Distinguishes insurance contract from wager (BCIA s. 10) o Rationale: discourages wagering and prevents moral hazard . Promotes indemnity principle: recovery is limited to the value of the insured’s interest  Formalistic approach (only have insurable interest when you have legal right to the property- Macura) is too narrow- legal title is not always a clear indicator (Constitution Insurance Co. of Canada v. Kosmopoulos) o Instead, factual expectancy test . The insured’s reasonable expectation of benefit from continued existence of subject matter, and detriment from loss, is sufficient to establish insurable interest . Requires pecuniary interest- sentimental attachment not enough . Legal title operates as a presumption in favour of insurable interest, but is not conclusive  Potential tension between factual expectation test and non-indemnity insurance contracts (i.e. life insurance is not linked to a calculable pecuniary interest) o Provincial statutes identify relationships which give rise to an insurable interest in the life insurance contract: BCIA s. 46, 108 . (a) Assured’s own life . (a)(i) child or grandchild . (a)(ii) spouse . (a)(iii) person on whom you are dependent or from whom you receive support or education . (a)(iv) employee . (a)(v) pecuniary interest of the life insured o insurable interest is presumed in specified relationships, no other proof required o contract void if outside specified relationship and no insurable interest . but, insurable interest not required for:  45(2)(a) and 107(2)(a) group insurance  45(2)(b) and 107(2)(b) written consent by person whose life is being insured  45(3) and 107(3) insured under 16 years- parental consent required o termination: court has discretion to make an order it considers just in the circumstances to terminate/vary a life insurance contract if the person whose life is insured has a reasonable belief that their life or health is in danger due to the contract . ss. 47, 109 . note that this assumes that the person is aware that their life has been insured  Timing: generally, insurable interest must be present at the time of the loss, but it depends on the type of contract o Insurable interest arises when ownership is transferred, even if possession has not yet occurred (Laratta v. Peace Hills) o For non-indemnity insurance contracts, insurable interest has to exist at the time of the contract . ss. 45(1) and 107(1) o if insurable interest is present at the commencement of the policy, the subsequent loss of insurable interest is irrelevant (Chantiam v. Packall Packaging) . if the policy is validly issued, the rights of the beneficiary are not affected by the termination of the insurable interest

o for indemnity insurance contracts, insurable interest must be present at the time of the loss . but it is irrelevant if you had it or not at the time of the contract, or if the interest lapsed and was then regained . rationale: commercially prudent, especially in changing inventory or nature of interests  Consequence of lack of insurable interest: o Non-indemnity: contact is void ab initio and premiums returned absent fraud . ss. 45(1), 107(1) o Indemnity: contract not void but claim fails, premiums not refundable absent mistaken belief about object of insurance  Proving insurable interest: burden of proof is on the insured, on a balance of probabilities

2. Insuring Others’ Interests  Insureds with only a partial interest can generally still insure the whole thing o Efficiency, simplified claim process

Requirements for Insuring Others’ Interests  3 requirements (Keefer v. Phoenix Insurance) o Insured has some insurable interest in the property o Insured intends to insure the interests of others o Permitted under the terms of the contract  Note that this is consistent with the indemnity principle: the full value of the loss is recovered by the purchaser of the insurance, but the amount beyond the insured’s loss is held in trusts for others.  No obligation to disclose limited interest subject to contractual terms (Keefer, Evergreen)- policy was valid provided that the insured had insurable interest  Statutory Condition 2: unless otherwise specifically stated in the contract, the insurer is not liable for loss or damage to property owned by any person other than the insured, unless the interest of the insured therein is stated in the contract o But this does not impact the ability of a party with a limited insurable interest to obtain full coverage o Prima facie interpretation of stat cond. 2 is somewhat inconsistent with Keefer . Meaning of “owned” is often liberally interpreted in order to promote an equitable outcome  But then it really just means anyone  Original intention in enacting legislation was to modify the common law rule- it is important that the insurer know who the owner is  Statutory condition 2 inapplicable where the insured has an insurable interest (Evergreen) o Should only cover situations in which the insured has no insurable interest, i.e. truck stored on property  Statutory Condition 1: o If any person applying for insurance falsely describes the property to the prejudice of the insurer, or misrepresents or fraudulently omits to communicate any circumstance which is material to be made known to the insurer in order to enable it to judge of the risk to be undertaken, the contract is void as to any property in relation to which the misrepresentation or omission is material

3. Joint Venture/Subcontractors  Each party, contractor, or subcontractor working on a project has an insurable interest in the entire project  No subrogation if loss caused by party with insurable interest (Commonwealth Construction v. Imperial Oil) o Insurers cannot bring an action against party that has an insurable interest in the entire property o Interests of the joint insureds are inseparably connected so subrogation is impossible  Where expansion projects are involved, subcontractors have insurable interest in the entire interconnected structure and not merely the new addition that they are working on (Medicine Hat College v. Starks Plumbing & Heating)  Insurable interest on projects limited to persons whose work is integral and necessary (Canadian Pacific v. Base-Fort Security) o Excludes incidental or collateral contributions

IV. MAKING AN INSURANCE CONTRACT

1. Requirements for a Valid Contract  Agreement between insurer and insured: o Definition of risk . Who and what is covered o Duration of risk o Premium o Insurance amount . Policy limits  Whether or not the essential requirements are satisfied is a question of fact  Contract formation requires offer, acceptance, consideration, and agreement upon essential terms  Offer and acceptance: o Initial contract: offer=application (by insured) o Renewal: offer by insurer, acceptance by insured paying premium

Relevant Common Law Principles  Binding insurance contracts can be formed on the basis of an oral agreement  Communication of offer and acceptance does not need to be express and can be reasonably implied or inferred from conduct  A party’s ability to accept an offer may be limited by requirements set out in statute or corporate bylaws  Written policies are not always determinative: the court will enforce the intentions of the parties over the written terms of the policy

2. Contents of Insurance Policy  Note that an insurance contract is broader than an insurance policy o Insurance policy contains the contract terms and conditions, but does not create any legal obligation o To create an insurance contract (which is legally binding) , policy must be supplemented by an agreement between the insured and the insurer on the essential terms of the contract  Contents of policy: BCIA s. 11, 47(2), 97(2) o Parties o Amount/policy limit o Premiums o Subject matter o Insured risk o Exclusions o Duration o Terms limiting recovery/liability o Limitation period o Definitions  Insurance company generally sets out terms and conditions o Only negotiation that occurs is with respect to premium cost & duration of coverage  Declarations page (sets out essential terms) and endorsements are added once the standard form policy becomes a contract

Limitation on Freedom of Contract  Certain conditions have to be part of every contract and cannot be altered to the detriment of the insured o Wording of standard form policies are subject to approval by a government agency o BCIA s. 16: . Terms not included in policy are unenforceable . Alterations made after policy issued are excluded . Renewals must make reference to the terms and conditions in the original contract  Unjust exclusions or conditions will not bind insured if found by a court to be unreasonable- BCIA s. 32

3. Duration of Insurance Contract

Interim Coverage  Immediate protection pending review of insurance application  Duration- less than full term  Full policy not issued- reasonable time allowed for insurer to assess request  Applicable terms and conditions are usually insurer’s standard interim policy terms and conditions, but are subject to agreement  Providing interim coverage creates no obligation to issue full coverage  Duration of interim coverage o Remains in effect until full coverage is issued o Termination is possible by either insurer or insured, but must give notice before stated expiry o When full policy not issued and interim coverage not terminated, reasonable time may be inferred by the courts o 5 months too long to be considered reasonable for insurer to assess request (Kostiuk v. Union Acceptance Corp.) . average is probably 30 days

Payment of Premium  not essential for valid contract: BCIA ss. 18. 106(a) o exception is life insurance: BCIA s. 48(1) . policy is not effective until the first payment of the premium is made and no changes have occurred with respect to the insurability of the insured between the delivery of the policy and the payment of the first premium  policy is effective upon receipt of the paperwork even if the premium has not been paid unless the type of contract is exempt from this type of coverage o Delivery provision: when the policy has been delivered the contract is binding on the insurer as if the premium has been paid . This does not nullify the requirement for offer and acceptance . Therefore, insurer may be liable for a loss before the premium is paid o Insurer is entitled to pay for unpaid premium or reduction in claim amount: BCIA ss. 21, 106(2)

Terminating Insurance Contracts  3 ways in which an insurance contract can be terminated: o on a specified date or event o mutual agreement . parties must clearly intend and agree to end contractual obligations o unilateral termination by insured or insurer . no common law right- must be allowed by contract or statute  s. 29 statutory condition 5, or s. 101 statutory condition 4 . no express restrictions on the reason for termination, but duty of good faith still applies . termination by insured:  must give insurer notice of intention to terminate o notice of intention is only effective when it comes to the attention of the other party o notice must be given by registered mail to the head office or chief agent in the province, or electronically (s. 7)  unused premium is returned upon surrender of policy, subject to minimum retained premium . termination by insurer:  termination notice must be sent to last known address, personally or by registered mail  insurer has discretion to terminate for non-payment of premium but must give notice: BCIA s. 20  unused premium refunded  termination becomes effective after reasonable statutory period: 5 days if in person, or 15 days if by mail (s. 29 stat cond 5, s. 101 stat cond 4)  insurer must do the canceling itself- can’t be done by an associated entity  insurer is not responsible for ensuring that the insured receives notice, provided that the insurer has complied with the statutory requirements for sending termination notice

Renewing Insurance Contracts  Continuous Policy o Extension of contract is anticipated at the outset and renewal is achieved by the unilateral action of one party . i.e. life insurance- effective until death of subject upon continued payment of annual premiums o renewal extends original contract- there is no new contract  non-continuous policy o no automatic renewal- requires new bilateral agreement o renewal process: . one-step: renewal request is sent with certificate of insurance. Once premium is paid, no further documents are required- a binding contract has been established. . Two-step: insurer mails renewal offer, insured pays premium, insurer issues new certificate of insurance  no binding contract until the premium has been paid  no obligation on the insurer to provide notice of termination if insured does not pay premiums (Patterson v. Gallant)

Grace Period  period between expiry and due date for renewal period  Contract is presumed to terminate on the original expiry date absent payment within grace period (Paul v. Cumis Life) o Notice of termination not required  Losses occurring within the grace period are covered so long as the premium is paid within the specified time (ss. 50(3), 106(4))  Grace period is discretionary o Exception- life insurance (ss. 50(2), 106(3))  Grace period commences on the premium due date even if it is a non- business day (Firth v. Western Life Assurance)  Grace period terminates on the next business day (Tiller v. McCarthy)

Reinstatement of Lapsed Policy . Simply means that parties enter into a new contract on the same terms and conditions as the original contract after contract is terminated or failed to renew o Requires new bilateral agreement upon terms and conditions . Reinstatement is at the discretion of the parties . Statutory obligation to renew life insurance within 2 years of the policy lapsing upon payment of overdue premiums and proof of insurability, including good health- BCIA s. 57(3) . Reinstatement is not retroactive unless otherwise stated in the policy (Parker v. Constitution Insurance Co. of Canada)

V. DUTY OF GOOD FAITH AND OBLIGATION OF FULL DISCLOSURE

1. Duty of Disclosure  In insurance contracts, must have forthright communication between the two parties o Caveat emptor inapplicable: can’t say that the insurer should be looking out for their own interest o Insured is to disclose material facts- equally responsible for omission or commission (misrepresentation)  Rationale: o Accurate risk assessment (Walsh v. Unum Provident) o Insured has the most direct and complete knowledge of his/her circumstances o UK Insurance Amendment Act replaced duty to volunteer information with duty to answer questions honestly and reasonably, and to take reasonable care not to misrepresent o Continuing justification for disclosure duty even given enhanced accessibility to information- still unreasonable for the insurer to take on the responsibility of investigating every possible risk  Insured’s duty limited only to facts within insured’s sole knowledge (Carter v. Boehm) o Opinions of insured need not be disclosed o No obligation to disclose facts within the insurer’s actual or constructive knowledge Test for Materiality  Reasonable insurer test: a fact is material if it would have caused a reasonable insurer to decline the risk or to have stipulated a higher premium (Mutual Life v. Ontario Metal Products, Henwood v. Prudential)  Undisclosed information is not material if it: o Lowers premiums o Has no effect on premiums o Merely delays formation of a contract  Burden of proof of materiality is on the insurer  Time for determining materiality o Time of the contract formation  The fact that a question is asked on an application form does not automatically make it material, but may be evidence that it is (Henwood) o This can go both ways- the fact that a question is not asked does not mean that it is not material  Whether or not the cause of loss is related to the undisclosed facts is irrelevant (Henwood) o What is important is whether or not the insurer would have acted differently but for the non-disclosure  Whether or not the insured knows how the information will affect insurability is irrelevant (Walsh v. Unum Provident)  Obligation is not limited to responses to specific questions asked- have to volunteer information  An insurer who relies solely on the testimony of its own employees to establish materiality takes a risk as to whether the court will find this sufficient (Henwood)  Concerns about disclosure duty o Privacy- disclosing too much o Nullification for innocent breaches o Unfair to applicants unaware of the scope of disclosure duty

Extent of Insured’s Disclosure Duty  Applicant is to disclose fully and fairly all known facts except information that is known or knowable by the insurer, i.e. common knowledge within the relevant industry (Canadian Indemnity Co. v. Canadian Johns-Manville Co.) o Insurer is expected to acquire requisite knowledge within the relevant industry- insured is entitled to assume that it is dealing with a competent and knowledgeable insurer  Insured must disclose all facts that are known only to them (i.e. number of seats in an aircraft) but do not have to disclose information that is available to insurer from other sources (i.e. insured’s previous accident record with the same insurance company) (Coronation v. Taku)  the burden is on the insurer to show that changes are material and within the control and knowledge of insured (Thomas v. Aviva) o suggests that insurer cannot void coverage based on non-disclosure of information that is not specifically requested o at the time of a renewal, the insurer waives its right to update information that it has not requested  insurer should be able to rely on statements made in the application, and only make further inquiries if something in the circumstances requires further investigation (Pereiera v. Hamilton Township Farmer’s Mutual Fire Insurance Co) o no general duty owed by an underwriter to an applicant to conduct a reasonable investigation  note that provincial legislation typically imposes a duty of disclosure on both the applicant for life insurance and the person whose life is being insured (BCIA ss. 51, 111) o both have an obligation to disclose all material facts that have not been disclosed by the other

2. Limits on the Insurer’s Risk Control: Statutory Modifications

Unspecified Classes of Insurance  BCIA s. 16: terms and conditions that are intended to bind the insured must be included in the policy or attached to it in writing o If it is not, it cannot be used against the insured  BCIA s. 17: materiality is required for a non-disclosure or misrepresentation to render a contract void or voidable  Property Insurance: statutory condition 1 o Insured is not to: . Falsely describe subject property to the insurer’s prejudice . Misrepresent material facts . Fraudulently omit material facts o If insured does these things, contract is void in relation to any property about which the misrepresentation was made o The insured’s duty cannot be expanded by warranties- can’t be held responsible for disclosing anything beyond material facts o Onus is on insurer to prove fraud or recklessness o On a plain reading, seems that misrepresentation does not have to be fraudulent, but omission does  Fraudulent omission requires intention to mislead (Taylor v. London Assurance Corp)  A misrepresentation is a statement calculated to mislead the insurer and is relied on by the insurer to its detriment (Taylor) o But this seems inconsistent with statutory condition 1- intention should not be relevant to misrepresentation . There is no indication in stat cond 1 that the insured’s state of mind is relevant- once the misrepresentation is established the insurer is entitled to void the contract ab initio (Bowes v. Fire Insurance Co of Canada)

Automobile Insurance  BC Insurance (Vehicle) Act s. 75 o Insured not to: . Falsely describe the car to insurer’s prejudice . Knowingly misrepresent or fail to disclose facts required to be stated on application o Note that provincial legislation may deem material any fact asked for in the application  “knowingly” does not require an intention to mislead (Sleigh v. Stevenson) o all that is required is that the insured is aware or ought reasonably to be aware that the information provided is inaccurate or incomplete o there is an obligation to read forms completed on your behalf before signing them  applicant must not only know the relevant information- must also know that this information renders the application untrue (Barsaloux v. ICBC)  an insured knowingly misrepresents information where he is aware or ought to be aware that the information provided is inaccurate or incomplete (Berkowits v. MPIC) o “knowingly” encompasses fraud but does not require it o means deliberate conduct intended to mislead- different definition than Sleigh, which did not require intent  where the insured knowingly and deliberately makes a false representation to gain an advantage, contract will be void (Allen v. MPIC)  misrepresented or undisclosed facts must be material to the risk (Berkowits)  which of these approaches is more appropriate? o Perhaps Sleigh because it holds the insured more accountable- insurer should not have to examine every case in detail . Purpose of disclosure duty is more consistent with the onus being on the insured

Life, Accident and Sickness Insurance  BCIA ss. 39(1), 94(1) o Misrepresentation and non-disclosure provisions are binding regardless of contractual terms  BCIA ss. 51, 111 o Disclosure duty binds both life insured and beneficiary . Extends to material facts which are known and not disclosed by the other person o Misrepresentation relating to application for additional coverage, increase/change in coverage renders contract void vis-à-vis the addition/increase/change  BCIA s. 48 o Insured must notify insurer of changes in insurability between the time of the application and the policy delivery  BCIA s. 52, 112 o (2) Incontestability: if contract has been in effect for longer than 2 years, a misrepresentation made at the time of contract formation will not render the contract void unless it was made fraudulently  BCIA s. 54 o Misstatement of age does not render a contract void, but premiums may be adjusted . Exception: if a contract limits insurable age and insured exceeds that age at the time of application, the contract is voidable by the insurer for 5 years after the contract takes effect, but only if the person is alive and the insurer voids the contract within 60 days of discovering the misstatement  Note that with life insurance, providing inaccurate or incomplete information which is material will be considered a breach of the disclosure obligation and will render the contract void regardless of whether the failure to disclose was innocent- does not require that the insured be aware that the information provided is incomplete, untrue or inaccurate (ss. 51, 111)  Onus is on insurer to establish on a balance of probabilities that the non- disclosures were made fraudulently to avoid incontestability (McLean v. Paul Revere Life Insurance Co)  All medical history is relevant in an application for life insurance (McLean)  If incontestability applies and the misrepresentation was not fraudulent, contract is not void (Metcalfe v. Manufacturers Life Ins)  How genetic information might affect access to insurance: o Duty to disclose includes material genetic information . Arises where the person has previously undergone genetic testing and is aware of information that might affect insurability o Genetic predispositions to certain conditions might adversely affect applicants . Risk that inconclusive test results may lead insurers to make assumptions about a person’s genetic susceptibilities, giving rise to denials of coverage, unwarranted higher premiums or reduced benefits o People might avoid undergoing genetic testing that would otherwise be helpful because it might detrimentally affect their insurability

3. Material Change in Risk  Duration of disclosure duty depends on the type of insurance o Insured is required to report changes in risk or changes that affect the risk o Statutory condition 4: insured must give prompt notice of a change that is material to the risk and that is within the knowledge and control of the insured . If an insurer is not notified of a change, contract is void in relation to the part affected by the change . Once notified of change, insurer can:  Terminate contract in accordance with stat cond 5  Require insured to pay additional premium within 15 days  Unilaterally terminate the contract if insured fails to pay the increased premium o With life insurance, a change of insurability between the application date and the policy delivery date means that the contract does not take effect unless the insurer agrees to cover the new risk

4. Proving Breach of Insured’s Disclosure Obligations  Burden is on insurer to prove insured’s breach to its detriment o Presumption of compliance can be rebutted with evidence  Necessary elements of the breach: o Insured failed to fully or accurately disclose particular facts o The undisclosed or misrepresented facts were material o The facts were known to the insured o Omission or misrepresentation was committed with the degree of intent required by law  where a question on an application form is unclear, the court will evaluate the accuracy of the insured’s response by considering how a reasonably intelligent Canadian in the applicant’s position would have understood the question (Stewart v. Canada Life)  presumption against agency BCIA ss. 90, 139 o the insurer’s employee or person soliciting insurance must not be presumed to be the insured’s agent to their prejudice . note that this presumption is inapplicable where the insured is expected to have reviewed responses before signing application form

5. Proof of Materiality  assumption is that the insured satisfied the disclosure duty, insurer has to rebut this  presumption of materiality: court presumes that the insurer’s practice reflects rationale of other insurers unless contradicted by insured (Henwood) o insurer’s own evidence of materiality based on its own practice is sufficient- courts presume that insurers will not take on undue risk so whatever they say they would do is evidence of standard practice o onus shifts to insured to prove that insurer’s practice is unreasonable or witnesses are not reliable o potential problem- this presumption turns subjective into objective . Ritchie (dissent) wants more information about standard practice o Note that Walsh v. Unum Provident requires outside expert evidence to establish reasonable insurer practice, but onus is still on insured to rebut this o Probable evidence of actual practice trumps prudent insurer standard o If the evidence shows that the non-disclosure would not have made any difference to the particular insurer had it been known, then reasonable insurer conduct is irrelevant and the contract will not be void (Nuvo Electronics Inc v. London Assurance)  The reasonableness of insurer’s practices will not be questioned where it is consistent with industry practice (Kehoe v. ICBC)

6. Effects and Consequences of Breach of Disclosure Duty  Upon breach, insurer has three options o Repudiate contract . Void ab initio . Insurer released from its contractual obligation . Notify insured of termination, return premiums absent fraud o Ignore breach . Would then be estopped from trying to assert breach of disclosure duty in the future o Unilateral termination in accordance with statutory condition 5  Statutory Modifications o Auto insurance: breach invalidates contract and insured forfeits ight to recovery- Insurance (Vehicle) Act s. 75 o Life, accident & sickness: breach renders contract voidable (ss. 51(2), 113(2)) . Breach in relation to changes to policy only allows additional coverage to be voided, so long as there is no breach in the original contract . Incontestability: contract not voidable after 2 years unless the breach is fraudulent (ss. 52(2), 112(2))  Actual fraud required (intention to mislead or recklessness)- proven by insurer on a balance of probabilities  Rationale: o Timely and thorough review of applications o Reasonable expectation of insureds and beneficiaries- avoids false sense of security  The fact that the cause of the loss is unrelated to the non-disclosure is irrelevant (McLean v. Paul Revere)  The insured’s state of mind can be inferred from the surrounding circumstances (Walsh v. Unum Provident) o Not enough to say that the insured “forgot”

7. Causation, Fairness and Insured’s Disclosure Duty  Can the court rely on discretion under s. 32 to relieve the insured of the consequences of the breach? o May be argued that the insurer’s ability to deny coverage on the basis of a non-disclosure or misrepresentation which is not causally related to the loss raises a question of fairness o S. 32 gives courts discretion to relieve the insured of the consequences in a condition, warranty or term that they think is unfair or unreasonable  Discretionary provision not limited to contractual conditions- is applicable to unreasonable statutory conditions, or conditions that are otherwise reasonable but are unreasonable in the particular circumstances (Marche v. Halifax Insurance Co) o Unjust to deny coverage where material change in risk was rectified before the loss, and the loss was unrelated to the temporary change o However, Bastarache (dissent) says that s. 32 should be applicable only to contractual conditions- statutory conditions are presumed to be reasonable

8. Legal Liability of Insurance Intermediaries  an insured may have an action against an insurance broker in either contract or tort (Fine’s Flowers v. General Accident Insurance) o contract: there is a contract between the customer and the intermediary separate from the actual insurance contract o tort: agent undertakes to obtain coverage for customer, customer has a reasonable expectation of care Scope of Intermediary’s Duty  depends on nature of service or product sought o if customer gives instructions to obtain “full coverage”, the intermediary is expected to familiarize himself with the customer’s specific needs and either obtain appropriate coverage or advise of its unavailability/gaps (Fine’s Flowers) . the intermediary is a professional with specialized knowledge o if a customer requests specific coverage, agent must exercise reasonable skill and care to obtain requested coverage or advise of its unavailability/gaps (Sandborn Wholesale Ltd. v. Pottruff & Smith Insurance Brokers) . agent is not in an advisory role if specific coverage is requested- no obligation to do further research into the business . discharge of obligation does not have to be in writing  ongoing duty o there is an obligation to reassess and re-advise the client if gaps arise (Beck Estate v. Johnston)  Public insurers also have a duty to advise on gaps in coverage (Fletcher v. MPIC) o It is foreseeable that customers will rely on information given by the public insurer to make informed choices o Public insurers should not assume too much about customers’ knowledge o However, this duty has a more limited scope than that of insurance brokers because of the institutionalized nature of public insurance, and the fact that public insurers do not hold themselves out as experts  Public insurers do not have the same duty as an insurance broker- risk assessments that are conducted for underwriting purposes only do not give rise to an obligation to assess customers’ needs in depth (Ostenda v. Bahena Miranda) o Their purpose in becoming familiar with the insured’s operations is to understand the risk for underwriting purposes, not to advise regarding the scope of the required insurance coverage