In a recent Ontario decision, a widow went to court after a bank refused to pay out $250,000 from her deceased spouse’s life insurance policy. The bank claimed that the deceased had failed to disclose his criminal past when signing the policy.
Couple Buy Life Insurance With Bank
A man and woman were common law partners.
In 2016, the couple went to a bank to buy car insurance. During the meeting with the bank representative, they made a spur-of-the-moment decision to apply for life insurance as well.
Both filled out a standard life insurance application form. One of the questions was:
Within the past 5 years have you had your driver’s license revoked or suspended, or have you been found guilty of impaired driving, or any other alcohol, criminal or drugs related offences or are there any such charges pending?
The man answered ‘no’ to the question.
Bank Issues Life Insurance Policies
Each partner signed their applications. As part of the form, the man authorized the bank to access information about any “record of criminal activity.”
Both partners’ life insurance contracts were approved on the spot.
The man’s policy named the woman as the sole beneficiary in the amount of $250,000.
Subsequently, the man paid the premiums due on time and in full.
Woman Applies for Insurance Payout After Man’s Murder
On July 12, 2018, the man was murdered.
As the named beneficiary, the woman filed a claim for the death benefit of $250,000. She provided all the required supporting information and answered the bank’s questions truthfully to the best of her knowledge.
Bank Discovers Man’s Past Criminal Activity
However, on August 14, 2018, while conducting an online search, a bank employee stumbled across three online articles from 2014 that referenced outstanding criminal charges against the man.
Thus, on September 18, 2018, the bank wrote to the woman, advising that it would be conducting a contestable review.
The bank then obtained court documents showing that the man had been charged with human trafficking and assault on October 19, 2015 and that the charges were outstanding when the man applied for life insurance. In fact, eight days after applying for the insurance, he pleaded guilty to assault and received a suspended sentence and probation for 12 months.
Bank Refuses Life Insurance Payout to Woman
Then, on March 5, 2019, a bank manager wrote an internal memo regarding the man’s insurance stating that: “Based on the criminal history provided, this policy would not have been approved had the history been fully and accurately detailed. Coverage would have been declined.”
Thus, on March 26, 2019, the bank denied coverage on the basis that the man had misrepresented or failed to disclose a material fact in his application. It returned the man’s premiums and denied further liability to the woman.
Woman Brings Court Action Against Bank
The woman claimed that the bank had breached the contract for insurance by failing to pay the death benefit due upon the man’s death. She asked the court to order punitive damages for bad faith, as well as full indemnity costs.
At trial, the main issue was whether the man had omitted or misrepresented a “fact material to insurance” such that the bank was entitled to void the man’s life insurance policy.
Court Finds That Man Had No Positive Duty to Disclose Criminal History
At the outset, the court explained that, under the Insurance Act, the bank’s insurance policy, and the common law, if the man’s pending criminal charges were a material fact to obtaining insurance, he was under a positive obligation to disclose them to the bank during the application process.
While the court observed that the man clearly had knowledge of his outstanding criminal charges as of the application date, it stated that the question was whether his outstanding criminal charges were “material to insurance” such that he was required to disclose them during the application process.
Ultimately, the court found that the man’s criminal charges were not material to the insurance, stating:
“The [bank manager’s] Memorandum is entirely conclusory in nature and offers no supporting analysis or clear information about how the pending criminal charges were material to determining Watson’s eligibility for life insurance or evaluating his insurance risk. There is no information about [the bank]’s eligibility policies, the practices of comparable insurers, or relevant actuarial information. Even counsel for [the bank] admitted that it was unclear whether [the bank manager] had properly confined her analysis to risks associated with the pending criminal charges, which the parties agree was the only fact known to [the man] on the date of Application.”
As a result, the court held that the bank had not proven that the man omitted or misrepresented a material fact in his application for insurance.
As such, the court ruled that the bank did not have lawful authority to void the policy.
Court Refuses to Award Punitive Damages
Despite its finding, the court refused the woman’s claim for punitive damages, finding that there was no direct evidence that the bank had acted in bad faith or had committed an independent actionable wrong.
However, the court issued a reprimand and awarded the woman full-indemnity costs as a result of the bank’s conduct, stating:
“I am, however prepared to order full-indemnity costs on the basis that [the bank]’s conduct has been heavy-handed in all the circumstances. Despite their duty to deal fairly, here, after up-selling life insurance to [the man and the woman], and happily collecting [the man]’s premiums, after his murder, [the bank] now seeks to rely on their own poorly-drafted Application to deny a death benefit to his widowed spouse….
This entire unfortunate series of events could have been avoided if [the bank] had asked clear questions in its Application. …
Surely [the bank], with a team of professionals at its disposal, could have come up with a clearer question or set of questions. How about: “Do you have any pending criminal charges?” There could have been follow up questions related to specific offences or categories of offences. While deficiencies in the Application could have been corrected in the in-person interview process, there is no evidence that [the bank] specifically advised or drew [the man]’s attention to his obligation to disclose criminal charges, or to make proactive disclosure of any kind. Nor does [the bank] allege that [the man] made any other misrepresentations or material non-disclosures.”
Court Orders Bank Pay Out Life Insurance Policy Proceeds to Woman
In the result, the court therefore ordered the bank to pay the woman $250,000 in damages plus applicable pre-judgment interest, as well as $14,668 in costs within 14 days of the judgment.
Estate disputes are complicated: they involved high levels of emotion, usually by individuals who are grieving the loss of a family member or who are dealing with a loved one who is very ill. Such disputes can become quite lengthy and can take months or even years to resolve, prompting individuals to take sides, creating acrimonious divisions, and eating into the value of an estate.
At Campbells LLP, our team of compassionate and highly skilled Oakville estate litigation lawyers have been assisting clients with estate disputes and resulting litigation since 1999. We are proud of the strong, long-lasting relationships that we build with our clients and provide a steady sounding board and legal advice to guide them through what can be one of the most emotionally draining times in their lives. With our help, we can ensure that the legacy of our client’s loved ones is carried out exactly as they wished, that their health and well-being is taken care of, and that their estate is protected.
At Campbells LLP, our exceptional estate lawyers can represent you in all estate litigation matters. We know that many individuals work during the week and cannot meet during the day. One of our lawyers would be pleased to meet you in the evening or during the weekend, by appointment, if your schedule so requires. Contact us online or at (905) 828-2247. We look forward to speaking with you and going through this process by your side.