The OCA said when a person’s insurability level changes before their policy starts, that policy is invalid
The Ontario Court of Appeal has clarified that there is no expiration date for when insurance companies can deny claims based on s. 180(1)(c) of the Ontario Insurance Act, which states that a life insurance contract is only valid if the policyholder maintains the same level of insurability between the time they apply for their policy and the time the policy is delivered.
Friday’s OCA decision in Trebell v. Canada Life Assurance Company overturns a lower-court ruling that had characterized s. 180(1)(c) as a “limited escape provision” that insurance companies can only rely on during the two years after a policy is delivered.
In the OCA decision, a unanimous panel of judges said that the correct interpretation of s. 180(1)(c) is that it sets out the conditions for the formation of a valid contract. If a policyholder’s level of insurability changes before their policy is delivered, they have not met the conditions for a valid contract, which means “the contract of insurance does not exist,” the panel wrote.
“Accordingly, s. 180(1)(c) can be relied upon at any time by the insurer to resist a claim for life insurance benefits,” the panel said.
The policyholder in the case was Elizabeth Trebell. Under the terms of a separation agreement with her husband, Scott Robert Wesley Trebell, Elizabeth had been required to maintain a life insurance policy for their daughters’ benefit. In July 2014, she cancelled an existing policy and applied for a new policy with Canada Life, which offered a better rate. She received her policy in August.
In the month between the policy application and delivery, Elizabeth was treated for health issues, but did not undergo more testing until September 2014. In December of the same year, she was diagnosed with cancer and passed away in 2018.
However, Canada Life declined to issue an insurance payout to Elizabeth’s family after her death. Although Elizabeth had consistently paid her policy premiums, the insurer pointed to s. 180(1)(c) to argue that her life insurance contract had been invalid, since her deteriorating health in 2014 changed her insurability between the time she applied for the policy and the time it had been delivered.
Elizabeth’s former husband, Scott, successfully sued Canada Life and Elizabeth’s insurance agent. In a ruling on the case last year, an Ontario motion judge granted Scott summary judgment against Canada Life for the full amount of the policy, plus interest.
The motion judge concluded that s. 180(1)(c) did not allow Canada Life to look back at Elizabeth’s medical records and raise insurability issues more than two years after her policy had been delivered. This conclusion was based on s. 184(2) of the Insurance Act, which states that an insurance contract remains valid even when a policyholder fails to disclose or misrepresents certain facts about their insurability, so long as the contract has been in effect for at least two years while the policyholder was alive.
Canada Life appealed the judge’s decision. Siding with the insurance company, the OCA said the broader issue on appeal was whether the motion judge had incorrectly interpreted s. 180(1)(c) to mean that insurers only have two years to deny claims based on insurability changes that take place before a policy is delivered.
The OCA panel agreed that the motion judge’s interpretation was wrong. Although s. 184(2) outlines a two-year period during which insurance companies can contest claims, the panel found that, based on the plain language of s. 180(1)(c), “read in context and consistent with the balancing of interests the legislature intended, there is no contestability limitation that applies.”
The panel highlighted another distinction between the two provisions. While s. 184(2) only applies if a contract has been in effect for two years, a contract is not even valid under s. 180(1) unless the policyholder satisfies one condition – namely, that their insurability does not change between the time they apply for a policy and the policy is delivered.
“It follows that if the condition in s. 180(1)(c) is not met, the triggering circumstance described in s. 184(2) does not arise,” the OCA panel said. “Hence, s. 184(2) cannot apply.”
Summarizing the result, the appellate panel said that s. 180(1)(c) “sets out a condition precedent for the formation of a life insurance contract. Where a change in insurability occurs between application and policy delivery, no contract forms and the insurer may deny coverage on this basis, regardless of the amount of time that has passed.
"While this may seem like a harsh result, it is the one the legislature intended,” the panel added.
On Monday, Philip Horgan of Philip Horgan Law Office, who represents Scott Robert Wesley Trebell, said the OCA’s decision represents “a disappointing outcome for Mr. Trebell, who has been denied the benefit of this life insurance policy since 2018.”
Horgan declined to comment further because the litigation is ongoing and said his client has not yet decided whether to appeal.
Counsel for the other parties, including Canada Life, Elizabeth Trebell’s insurance agent, and an intervenor, declined to comment.
