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Full Disclosure Cautionary Tale
Published in the July 2008 issue of Litigation Notes - View Article
Summary: A disability insurance policy was found to be void by reason of material non-disclosure on the application for insurance. Failure to disclose a previous back injury entitled the insurer to void the policy, even though the disabling injury was unrelated.
The Ontario Superior Court of Justice recently provided us with a cautionary tale about the importance of making accurate and complete disclosure of all material facts at the time of application for a policy of insurance.
In November of 2000 Mr. Fernandes applied for disability insurance with the predecessor of RBC Insurance Company. One of the questions on the application for insurance was: “Have you ever had any known indication or been treated for… any type of back or spinal trouble including sprain, strain or disc disease or disorder?”. Mr. Fernandes answered “no” to this question. Another question read: “Have you ever had any known indication or been treated for… any disease or disorder of the hip, ankle, knee, wrist, elbow, shoulder or any other joint?”. Mr. Fernandes answered “no” to this question as well.
In January of 2000 Mr. Fernandes became disabled as a result of an acute case of meningitis. Prior to that he had been employed as a carpenter. He remained disabled at the time of the hearing. In March of 2000 he applied for long term disability benefits and was rejected on the basis that he had misrepresented his medical condition on his application for insurance and the policy was therefore void ab initio.
The insurer’s denial was based on the fact that Mr. Fernandes had reported some lower back pain to his family doctor in June of 2000. In addition, he had been treated for a hip injury sustained in a construction accident in August of 1998. The plaintiff argued that these incidents had been minor in nature and would have been easily forgotten. He argued that the questions on the insurance application had been intentionally drafted by the insurer “…with the intention of creating uncertainty and thereby justifying its subsequent refusal of valid claims on the basis of its own tortured interpretation of the questions, designed in ambiguous and misleading terms”.
The motions judge rejected this argument for a number of reasons. One was that the application also contained a catch-all question relating to previous occasions on which Mr. Fernandes had consulted a physician or been treated in the hospital. Answering this question, the plaintiff described a motorcycle accident that had occurred in January of 1995 but neglected to mention the hip injury in 1997 or the consultation for the lower back pain in June of 2000.
In addition, the plaintiff had been asked for the names and addresses of his attending physician (s). He gave the name of a physician who had been his physician for ten years but had retired in January of 2000. He did not give the name of the physician who had attended to him in June of 2000.
The Court began by pointing out that an insured has common law, statutory and contractual obligations to disclose all material facts in any application to an insurer underwriting an insurance risk.common law principle regarding the duty of disclosure is codified in section 308 of the Ontario Insurance Act which provides that an applicant for insurance “… shall disclose to the insurer in any application, on a medical examination, if any, and in any written statements or answers furnished as evidence of insurability, every fact within the person’s knowledge that is material to the insurance and is not so disclosed by the other” and that “… failure to disclose or a misrepresentation of such a fact renders a contract voidable by the insurer”.
The Court reviewed the caselaw relating to whether or not the non-disclosure was material to the risk and quoted from a case which summarized the current state of the law: “It is a question of fact in each case whether, if the matters concealed or misrepresented had been truly disclosed they would, on a fair consideration of the evidence, have influenced a reasonable insurer to decline the risk or to have stipulated for a higher premium”.
In this case a representative from RBC Insurance testified that if Mr. Fernandes had disclosed the nature of his injuries he would have been required to complete a back injury questionnaire. Although certain complaints from patients may not be medically significant, they may be significant from an underwriting perspective. In this case, given the plaintiff’s occupation in construction, where back injuries are common, and given his recurring complaints over a period of three years, she testified that a policy would not have been provided to him on the same terms and conditions.
The Court also referred to the caselaw that has established that there is no need to relate the medical information not disclosed on the application for insurance to the subsequent disability claim. It was therefore irrelevant that the misrepresentations made by Mr. Fernandes bore no relation to the meningitis which ultimately led to his disability. The Court therefore concluded that “it would be inconsistent with the terms of the Insurance Act, the contract and with basic common law insurance principles to allow an insured to withhold material facts that plainly bear upon insurability”. The insurance policy was found to be void ab initio.
Fernandes v. RBC Life Insurance Company, 2008 CanLII 34279