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Risks Associated With a Simplified Life Insurance Proposal and Nullity Ab Initio

On March 28, RSS obtained a favourable decision on behalf of its client in Kabeya c. Compagnie d’assurance-vie RBC [RBC], 2022 QCCS 1035. In this decision, the Court concluded that a life insurance policy was null and void due to a false declaration by the insured regarding his Canadian citizenship status. The Court also considered the appropriateness of using a simplified form at the time of the application for a life insurance policy, as opposed to a more detailed application form, while recognizing the materiality of the false declaration in the insurer’s assessment of the risk.

The Facts

On November 6, 2015, the insured arrived in Canada from the Democratic Republic of the Congo as a refugee protection claimant. On July 5, 2016, he signed a proposal for a temporary life insurance policy with RBC. A simplified form was used rather than a more elaborate form. The proposal contained a question “Are you a Canadian citizen?”, to which the insured answered in the affirmative.

Based on this answer, other questions such as whether he was a permanent resident and when he had arrived in Canada are not raised. The application was completed by an insurance advisor in the presence of a colleague, based on the information provided by the insured, and the life insurance policy was issued the same day. On August 30, 2016, the insured received a copy of the policy and agreed to its terms.

On May 18, 2017, at the age of 27, the insured died of natural causes.

Since this claim was related to a death occurring within the two years from the coming into force of the policy, the insurer proceeded to verify the accuracy of the information provided in the proposal. This revealed that, contrary to what he stated, the insured was not a Canadian citizen when he signed the proposal: he was a foreign worker residing in Canada under a temporary work permit.

On February 9, 2018, the plaintiff, the insured’s father and beneficiary under the policy, was informed that the policy was terminated because of the insured’s misrepresentation. Since he was not a Canadian citizen, the insured was not entitled to the insurance coverage sought and, therefore, the plaintiff’s claim for the $150,000 indemnity was denied by the insurer.

Decision

In the Court’s view, the insured incorrectly answered both the questions on his citizenship and on his stay or residence outside Canada during the previous 12 months. The Court was also satisfied that the misrepresentation was material to the assessment of the risk, both by RBC as by any other reasonable insurer, pursuant to article 2408 of the Civil Code of Quebec [CCQ].

The evidence revealed that disclosure of the insured’s status as a temporary worker at the time of the proposal would have led to the immediate refusal of his insurance application. A client who, like the insured, was neither a Canadian citizen nor a permanent resident would have been refused coverage outright. This policy is in accordance with the industry and the table ratings of other insurers.

The plaintiff further criticized the insurer for using the simplified process, arguing that if a more elaborate form had been used, the insured would almost certainly have disclosed his temporary status. He also claimed that the insurance counsellors had intentionally entered a false answer to the questions.

These claims were not upheld by the Court. The use of a simplified form is customary in the insurance industry, particularly in the case of a young man with no apparent health problems, and given the amount of insurance sought. It should be noted that the simplified form includes a pricing determination within the questions asked. Absent a problematic answer, the risk was deemed acceptable, given the initial test relative to the acceptability of the proposal, and the client was therefore automatically insured.

The Court also found that the questions raised in the proposal were asked verbatim and the answers recorded were those given by the insured. The questions were objective, clear and unambiguous and did not require any subjective appreciation by the client.

Insofar as the insured asserted that he was a Canadian citizen and denied having been outside the country during the previous 12 months, the insurer was not compelled to do any additional verification or investigation. The Court reiterated the basic principle of the client’s good faith, on which the insurer is entitled to rely, and concluded that the information required to assess the risk is in the answers in the proposal form. By giving an erroneous answer, the insured deprived the processing system from triggering a red flag, which would have signalled the need to perform an investigation. It should be noted that the insured’s hypothetical intention to mislead the insurer was irrelevant, since the policy had been in force for less than two years.

In light of the above, the Court declared the nullity ab initio of the life insurance policy taken by the insured. The insurer was therefore justified in requesting the ab initio cancellation of the insurance policy pursuant to article 2410 CCQ.

L’article Risks Associated With a Simplified Life Insurance Proposal and Nullity <em>Ab Initio</em> est apparu en premier sur RSS – Robinson Sheppard Shapiro.