A Win for a Life Insurance Beneficiary!

This past week, the Ontario Court of Appeal found in favour of a woman trying to collect under a contract of life insurance held by her deceased husband.  The court dismissed an appeal from the insurance company from a jury award of $280,000 that was granted to the woman in December.  The decision centered around the interpretation of the phrase “change of insurability”.  What does this mean for someone in Ontario trying to collect under a life insurance policy?  

What is the law?

Under section 180(1)(c) of the Insurance Act, a life insurance policy does not take effect if there has been a change in the insurability of the life to be insured between the time the application is completed and the time the policy is delivered.  In this case, the date of the application was January 16, 2009 and the policy was delivered on February 17, 2009.

So, if there had been no change in insurability between these two dates, the contract would have come into effect and the insured’s beneficiary would be entitled to collect under the terms of the policy – $280,000 as found by the jury..

What were the facts?

According to a mid-trial ruling, as part of the life insurance application process, the insured disclosed that he had been diagnosed with gallstones and that he was being referred to a surgeon.  During a February 2nd consultation with his surgeon, a heart murmur was detected and the insured was referred for an echocardiogram.  The echocardiogram, performed on March 12, 2009, revealed an aneurismal ascending aorta which necessitated heart surgery.  Tragically, the insured died on May 6, 2009 due to complications from the surgery.

At no time was the insurance company advised about the detection of the heart murmur or the referral for an echocardiogram.

What happened at trial?

The trial judge instructed the jury that if they found that objectively there had been no change in the health of the insured between January 16 and February 17, 2009, then there was no change in insurability.  This would mean that the insurance company could not rely on section  180(1)(c) to argue that the insurance contract had not taken effect.

What did the insurance company argue on appeal?

The insurance company argued that the trial judge erred by linking the word “insurability” in section 180(1)(c) to the insured’s health; instead different factors such as emerging medical information (presumably the detection of the heart murmur and the referral for the echocardiogram) could mean a change in insurability.  This of course, would mean that on the facts of this case, the contract would not have taken effect and the insured’s wife would not be entitled to the $280,000.

What did the Court of Appeal decide?

The court rejected this argument, found that the trial judge’s charge was correct and that the jury’s verdict was reasonable.

The court relied on the following factors to reach its decision: 1) the insurance contract itself did not define “insurability”; 2) the receipt the insured was required to sign, directly linked “insurability” to a potential insured’s “state of health” and “occupation”; and 3) on the facts in this case, the insurance company’s representative conceded that the insured’s state of health had not changed over the relevant period.

Click here to read the Ontario Court of Appeal’s full decision in Pagliaroli v. Industrial Alliance Insurance and Financial Services Inc.