Issues with K Formation:
The Disclosure Duty
Content
Common-Law
Issue / Where / RatioStarting point / Carter v. Boehm / Insured only has duty to disclose all material facts w/n their sole knowledge.
- Insured does not have to disclose what insurer actually knows or could know with reasonable efforts.
- Insured does not have to disclose future speculation or opinions… only past and present FACTS
Why? / Walsch /
- Accurate information necessary for accurate risk assessment and informed underwriting practices.
- Facts inaccessible to insurer
- Insurance is valuable to society, so we all have an obligation to keep it going
Effection of Non-disclosure / BCIA s. 17 / (1) A contract is not rendered void or voidable by reason of any misrepresentation, or any failure to disclose on the part of the insured in the application or proposal for the insurance or otherwise, unless the misrepresentation or failure to disclose is material to the contract.
(2) The question of materiality is one of fact.
General Insurance Ks
Where / Ratio / NotesBCIA s. 16 / Terms and conditions intended to bind insured must be in the policy or in writing
BCIA s. 17 / Warranties of truth abolished, materiality required for non-disclosure or misrepresentation. /
- Insured’s duty cannot be expanded by warranties
- Misrepresentation must relate to material facts
Property Insurance
Issue / Where / Ratio / NotesSpecific disclosure for property insurance / BCIA s. 29 stat cond. 1 / If a person applying for insurance falsely describes the property to the prejudice of the insurer, or misrepresents or fraudulently omits to communicate any circumstance that is material to be made known to the insurer in order to enable it to judge the risk to be undertaken, the contract is void as to any property in relation to which the misrepresentation or omission is material.
Insured not to:
- Falsely describe subject property to insurer’s prejudice
- Misrepresent material facts, or
- Fraudulently omit material facts
- Why? Accurate risk assessment
Omissions/non-disclosure and misrepresentations distinguished
- Misrepresentation: customers’ intention irrelevant; misrepresentation need not be fraudulent; an insured is in breach of disclosure obligation if the insured misrepresents a material fact even if the misrepresentation is unintentional. (Bowes)
- Omissions/non-disclosuremust be fraudulent; requires subjective awareness of materiality of facts omitted (Taylor)
Problems /
- Difficult to delineate between an omission and a misrep
- Inappropriate for duty to be narrowed solely for the omission of information but not the misrepresentation of information.
Auto Insurance
Issue / Where / Ratio / NotesSpecial Disclosure for Car insurance / Insurance (V) Act, s. 75(a) / Insured not to
(1) Falsely describes car to insurer’s prejudice; or
(2) Knowingly misrepresent or fail to disclose facts required to be stated on the application / If they do, all claims of applicant/insured or their dependent or someone claiming through them is forfeited.
Meaning of “knowingly” / Berkowits v. MPIC /
- Requires deliberate conduct;
- “Knowingly” qualifies misrepresent and failure to disclose
- error re address not deliberate; No breach of disclosure duty
Sleigh v. Stevenson / intention to mislead not required; suffice insured knew facts to have been disclosed; distinguished innocent misrepresentation
Barsaloux / Sleigh explained; knowledge of relevant information that makes statement untrue
Relevant question: Whether applicant knew at the time of insurance facts that would render statement untrue
Materiality / Berkowits / However before a claim can be denied, the false statement must also be material.
Example / Allen v. MPIC / P had relocated to US at time of renewing insurance for motorhome; misrepresented primary residence in renewal application as being Manitoba; renewal documents mailed to Manitoba and forwarded to her in US. Returned completed form to sister-in-law in Manitoba who went to pay for insurance premium in person. Motorhome damaged while en route to Manitoba for visit.
Held: No have valid insurance at time of accident; insured knowingly and deliberately made false declaration with intent to conceal primary residence to obtain favourable insurance rates for residents. Insurance void ab initio; no relief against forfeiture
Life and A & S
Issue / Where / Ratio / NotesParties Subject to Duty of Disclosure for life insurance and A &S / s. 51; s. 111 / Disclosure duty binds applicant (customer—person taking out insurance, sometimes called assured) AND life insured (the person whose life is insured) / This is despite lack of privity of K between the life insured and the insurer.
Exceptions / s. 52; 112 / Duty does not apply to misstatement of age (only for life).
After 2 years, non-disclosure incontestable. / 113—incontestability period restarts on reinstatement
53—Reciprocal duty on insurer—must disclose facts material to K for insurance, if they don’t insured has option to void K. Same incontestability period though.
54—if misstatement in age, insurer MUST increase or decrease insurance amount based on correct age. If person older than permitted by K, insurer can void K if insured life is still alive, and if they do so w/n 60 days of finding out, w/n five years of K formation.
Scope of Duty / s. 51(1); s. 111(1) / Must disclose all material facts that have not been disclosed by the other person.
McLean v. Paul Revere / Medical history IS a material fact and must be disclosed. / Jail time, employment history and residence history NOT material facts.
Metcalfe / Here hospitalizations and treatments for past drug use were held to be material facts… even though guy clean at the time he applied.
Consequence of non-disclosure / 51(2); 111(2) / K voidable at option of insurer
McLean / Consequence of non-disclosure is that K is voidable at option of insurer.
51(3); 111(3) / Where misrep in relation to application for additional/new/ different insurance, just that part voidable by insurer.
Metcalfe / Disclosure obligation arises when you are seeking increased coverage or other changes as well. However, consequence of non-disclosure is to only render the increased or different amount void, not original K.
Duty and non-disclosure provisions mandatory / s. 39(1); 94(1) / Duty provisions binding regardless of contractual terms—can’t vary by K.
Policy / Adjin-Tettey / Applicant not required to undergo genetic testing
-but are required to state family history
-if there is something genetic in there, insurer will assume the worst
-so people may be encouraged to get testing on the chance they don’t have it, even if they don’t want to
Must disclose genetic testing undertaken
-insurer wants as accurate a rep of the risk as possible so they can make appropriate underwriting decisions
-other insured don’t want to subsidize someone with a huge risk—unfair.
Concerns
-access to insurance is very important, affects employability, ability to participate in life
-people may be hesitant to get testing if they know it can be used against them, so health care costs because we miss out on proactively treating people who don’t get tested
On the other hand
-we could just socialize the risk, and say hey anybody could have something bad happen to them, could be me or you, so let’s all band together and we’ll pay if any of us are unfortunate enough to suffer from a genetic condition.
Justification
-people that get tested and know they have a condition will go out and get lots of insurance because they know they need it—esp. if they don’t have to disclose
-life insurance is about providing for your family… does society really want to subsidize and help your kids get rich when you die?
-Is genetic information any different from other health care information? Argument about control but I think that’s dumb… you don’t really “control” whether you contract a disease… no one even know what causes many of them! I don’t think it is different.
Duration
Issue / Where / Ratio / NotesDuration of Disclosure Duty / Lecture / Depends on the type of insurance:
General insurance: Part 2, ONGOING
-BCIA s. 29 stat cond. 4, must provide written notice of changes to material risk w/n insured’s knowledge of risk and control.
A&S
Semi-Ongoing
-BCIA s. 101 stat cond. 3 must disclose change in occupation only
Auto: BCIVR
Bcreg 477/83, sched 10, s. 2(3)
-Changes in vheicle use and primary location when not in use must be disclosed.
Life: ONLY at the outset… NO ongoing duty, unless customer is seeking an increase in amount, then you have to disclose changes at that time.
Consequences of Breach / BCIA s. 29 stat cond. 4(2) / Does NOT make entire policy voidable, rather contract is only void IN RELATION TO THE RISK that the material fact relates to. / Ex. house insurance, don’t disclose when you get a wood fire place, insurance void in relation to FIRE but not to break and enter.
Insurer’s options on Notification of Change / BCIA s. 29 stat cond. 4 (3)(a) / May unilaterally terminate K in accordance with stat cond. 5
BCIA s. 29 stat cond. 4 (3)(b) / May notify insured of increased premium w/n 15 days
(can increase, statutory minimum) / Coverage continues until the end of this period per stat. cond. 4(4), regardless of whether insured chooses to pay—b/c 15 days is the unilateral termination notice period.
If insured does not pay w/n period given, K automatically terminates, no more notice need to be given.
n/a / Do nothing.
Breach?
Consider was (a) fact inaccurate or not disclosed? (b) material and (c) within the insured’s knowledge to determine if disclosure duty breached, AND lastly (d) the insurer must establish prejudiceInaccurate or not disclosed information?
Ambiguous Q / Stewart / If response to an ambiguous question is inaccurate, may not be breach of disclosure if answer reasonably responds to ambiguous Q.
Test: how a reasonably intelligent person in customer’s position would have understood the question
MacQuarrie /
- Applicant said “no” to Q about respiratory conditions. Suffered from sleep apnea, which is a respiratory condition, technically.
- Not a breach of disclosure duty b/c reasonable person would not consider sleep apnea a respiratory condition, answer therefore not inaccurate.
Intermediary inaccurately fills out application:
Part 2 Insurance / Newsholme / Where an intermediary fills out a form for the applicant, they are acting as the insured’s agent and therefore any mistake made by the intermediary in recording the information attributable to the insured.
Sleigh / If you sign the form w/o reviewing, it doesn’t matter—still bound by agent’s mistake.
Stone / EXCEPTION:
Contextualized approach to relive unfairness, where agent has authority (actual or apparent) from insurer to complete the form for the insured, then a mistake of the agent is NOT a breach of disclosure on the part of the insured.
Blanchette / EXCEPTION:
Where there is NO opportunity for the insured to review the accuracy of the information, then the insured was not negligent and the Newsholme principle will not apply. Not a breach of disclosure if agent makes mistake.
DISSENT: if you sign something in advance, then you should be stuck with the consequences when someone at your direction fills it in for you.
Lecture / POLICY problems:
-Customers reasonably expect that insurance agent works for insurer, not that they are the customer’s agent.
-Doesn’t accurately reflet the intermediaries real role to call them agent of the customer, they are trying to SELL and are the face of the insurer to the customer.
Intermediary inaccurately fills out application:
Life and A&S / BCIA ss. 90; 139 / PRESUMPTION that insurer’s employee, officer, or person soliciting insurance for insurer is NOT considered insured’s agent to latter’s prejudice
Walsch / Rebutted Where:
-Insured expected to have reviewed responses before signing
-Document warns applicant about importance of accuracy and consequences of inaccuracy (in clear, bold face, NOT fine print)
-Intermediary records inaccurate information provided by applicant
-Regardless of whether insured actually did review the information or not.
Is it a material fact? / Ontario Metal Products / “Reasonable Insurer Test” (objective-insured’s subject belief irrelevant)
Onus on Insurer to establish materiality
If the fact is one which would have adversely affected a reasonable insurer’s decision to underwrite the risk at the stated premium, either by charging more or refusing coverage, it is a material fact.
Timing / Henwood / It is irrelevant if the cause of loss is related to the undisclosed facts. It is the time of K formation that is relevant for determining whether a fact is material, would disclosure of the fact have influenced the decision to underwrite?
Presumption / Henwood / There is a presumption that the insurer’s actual practice is representative of a reasonable insurer. So can use their own evidence of materiality to satisfy reasonable insurer test.
*Insurer NOT required to adduce evidence of other insurers’ underwriting practices
Walsch / While the presumption still exists, evidence of insurer’s underwriting practices ALONE is NOT sufficient to satisfy reasonable insurer test. Expert evidence required to establish reasonable insurer practice.
MacQuarrie / Insurer should have called witness with knowledge of general insurance industry and not just the underwriter who made the initial decision.
Where insurer did NOT ask Q regarding info not disclosed / Sagl / Just b/c insurer did not ask Q, doesn’t mean that info was not material.
However, failure to ask Q that a reasonable insurer would consider the answer to material means insurer does NOT consider info material and there is no breach for failure to disclose.
Thomas / Ex: man got secondary heating system (wood stove), change in material risk. Did not disclose, but all the renewal forms had this Q crossed out b/c he didn’t have one when he first got insurance. NOT a breach of disclosure duty b/c insured didn’t ask question, and reasonable insurer would consider answer to Q material.
Is it within the insured’s knowledge? / Walsch /
- Actual or constructive knowledge
- Insured’s opinion regarding materiality of information irrelevant
Johns-Manville / Applicant to disclose fully and fairly only known facts
Excluded:
•Information known or knowable by insurer, e.g. common knowledge within relevant industry
•Facts in public domain discoverable through research
- Test: Whether "a reasonably competent insurer" insuring risks in operative industry would have known facts.
- Insurer offering protection re asbestos industry in early 1970s should have known risk to human health
- Matters of public character and notoriety
Pereira v. Hamilton Township /
- Disclosure duty primarily on insured
- Insurer’s duty to make further inquiries narrowly construed
- Arises only in exceptional circumstances where necessary
Prejudice to the Insurer? / Taylor / After you prove breach of disclosure of material fact, insurer must prove the breach induced the insurer to enter the K, and therefore they suffered prejudice.
Test: what would a reasonable insurer have done? (Prudent insurer test)
Nuvo Electronics / Subjective underwriting practice of insurer relevant ONLY if it meant the insurer would have GRANTED coverage even though reasonable insurer wouldn’t. In that case, overrides objective test and fails to prove prejudice, b/c insurer would have insured anyway.
Kehoe / Where insurer’s practice is consistent with industry practice—then reasonableness of the practice is not questioned.
Note: Causation
Issue / Where / Ratio / NotesCausation Unnecessary for Breach / Henwood / Once there has been a breach of the disclosure duty, it is irrelevant whether that breach is connected to the loss breach of disclosure duty voids the K ab initio
Effects and Consequence of Breach
Issue / Where / Ratio / NotesCommon-law, Insurer’s options / Ellis / Upon discovering breach of disclosure duty on the application form, the insurer has three options:
- Repudiate the K on the basis of the breach
- If the K is void abintio, the insurer has to return premiums (absent fraud (Venner)).
- Treat the K as valid and subsisting despite the breach
- Treat the K as valid despite the breach, but cancel the K in accordance with statutory provisions authorizing unilateral termination.
- No return of premiums.
Where there is an intention to mislead, this is fraud. Insurer must prove on B of P that insured knowingly misled insurer (knowingly made false representations) or was reckless (McClean)
Where breach is of CHANGE / s. 32 BCIA / Court has discretion to consider contractual terms and conditions and relieve insured of application where the condition is unreasonable or unjust.
Marche / Court may exercise their discretion under s. 32 in relation to contractual OR statutory provisions. / Dissent: discretion only applicable to contractual condition.
Court will do so where:
(1)an insured failed to disclose a material change in risk,
(2)but the change was temporary,
(3)rectified before loss and
(4)causally unrelated to the loss.
Distinguished: Henwood, where breach is ongoing or at beginning of K, K is void abintioso nothing to relieve against b/c K never existed. However, where it is a material change in risk, K did exist, just subsequently breached, so Court can relieve against consequences. / -Unjust to deny coverage where material change in risk recified before loss and loss unrelated to temporary change
-Not reasonable to require disclsoure of temporary change in material risk, totally unrelated to the loss.
-Not realistic to expect people to call insurer and report every little tiny thing that happens with the property
Auto Insurance / s. 75 BCIVA / The claim is invalidated and recovery is forfeited, for insured or any party claiming through insured.
General Insurance Ks / BCIA s. 29 cond. 4 / Contract is void vis-à-vis property/risk subject to the breach. The insurer has to notify insured of termination, and premiums are refunded (Ellis) absent fraud (Venner).
Life/Accident & Sickness
General Rule / BCIA s. 51(2); s. 111(2) / Contract is voidable by the insurer / Insurer may choose to ignore it. Life is treated differently b/c it is a long term K, unlike property which may be renewed yearly.
s. 111(3); s. 51(3) / But if in relation to addition, increase or change, or in relation to that addition increase or change.
Incontestability / BCIA s. 52(2); s. 112(2) / Contract is not voidable for non-disclosure or misrep if K is ineffect for over 2 years during the life of the person. / A reinstatement, addition, increase or change restarts the incontestability period for the part that is reinstated, added, increased or changed.
Metcalfe / Example: man did not disclose drug addiction, b/c he asked agent and agent said if it was over two years ago you don’t have to disclose. No intention to mislead, and therefore as breach happened over two years ago, policy not voidable b/c incontestable. / Rationale for Incontestability: