A life insurer may refuse to pay out a claim for any of the following reasons:

1. The policy lapsed or coverage ended because:
   • the policy was for a fixed term and the life insured did not renew or convert the policy;
   • the insured missed a premium payment; or
   • the insured left their work and lost their entitlement to group life insurance coverage.
2. The cause of death is not covered such as:
   • death occurred as a result of participating in an extreme sport and the policy excluded coverage in that situation;
   • the insurer claims that death occurred due to an illegal activity; or
   • the insured died as a result of suicide in the first two years of coverage known as the “contestability period”.
3. The majority of life insurance claims are denied because the insurer claims that the insured person failed to fully disclose their medical history, making a misrepresentation on the application for insurance.

When can an insurer deny a life insurance claim due to misrepresentation?

Issue 1 – How long was the policy in place?

The Insurance Act requires a person applying for life insurance to disclose “every fact within the person’s knowledge that is material to the insurance.”

If a life insurance policy has been in place for two years or more before the insured died, the policy is incontestable.

If the insured person died in the first two years of coverage, and innocently or negligently failed to disclose material facts about their health, the insurer is entitled to deny payment of the claim. After the first two years of coverage, the insurer can only deny the claim for material misrepresentation if the insurer can prove fraud.

The first two years of coverage is known as the contestability period.

Key points:

1. In the first two years, the insurer could refuse to pay if the life insured failed to disclose something innocently/negligently.
2. If the insured person dies after the policy has been in place for at least two years, the insurer can only deny payment for misreprestation if it can prove fraud on the application.

Issue 2 – What is the misrepresentation/nondisclosure?

Not every misrepresentation or nondisclosure will entitle an insurer to deny a claim. The information must be material to the risk. Material to the risk means that the information which has not been disclosed must be relevant to the risk that is being insured by the company.

Material to the risk:

Material to the risk means that if the insurer had known the undisclosed information, it would not have issued the policy of insurance. If the insurer can show that it would have charged more for the policy or issued the policy with a change in the coverage, it can also deny payment. For instance, an insurer could issue a policy which excluded death from skydiving if the insured person disclosed that they participated in this risky activity.

Standard of the reasonable insurer – underwriting guidelines:

When insurance companies determine whether to issue an insurance policy, they  refer to guidelines regarding insurability which are called underwriting guidelines. Insurers need to follow guidelines which are reasonable as compared with the rest of the industry. The insurer is judged against the standard of what a reasonable insurer would have determined to be relevant to the risk. To avoid paying the policy, the insurer must show that it would not have issued the policy and that its position is reasonable as compared with other insurers.

Key points:

1. If the insured person failed to disclose something which is irrelevant or immaterial, the insurer cannot refuse to pay. Not every misrepresentation or nondisclosure is relevant to the risk taken on by the insurer.
2. The insurer cannot rely on its own internal guidelines to deny the policy unless those guidelines fit within the standard of what other reasonable insurers would have considered material.

Issue 3 – It doesn’t matter whether the nondisclosure was connected to the cause of death?

In a life insurance claim, the lawyers handling the matter are often asked “but how did the deceased die?” The inference is that if the person died of a heart attack, the insured’s failure to disclose an outstanding breast biopsy result is irrelevant. While this might seem reasonable logically, the nondisclosure and the cause of death have nothing to do with each other. The key question is whether the insurer would have issued the insurance policy had it known that the insured had an outstanding biopsy result. If the insurer can show it would not have issued the policy until the result was known, and that position was reasonable in the context of other insurers, then no benefit is payable.

Conclusion:

Life insurance denials can be challenged if your lawyer understands the law as well as the rules which govern insurers. It is a specialized area which requires skill, knowledge and experience. Few lawyers have any experience challenging life insurance denials – when considering hiring a lawyer to challenge your claim denial, ask about their knowledge of life insurance concepts and their experience handling life insurance cases.

We have the experience and knowledge necessary to investigate the reason for the denial and determine whether the insurer’s decision can be challenged. For advice, please text 613-777-0992 or contact us through our website to schedule a meeting with one of our lawyers.  We will provide a free consultation, in French or English, to ensure that your rights are protected.   In most cases, we can offer to represent you on a contingency fee basis.  This means that you do not pay legal fees unless you win or achieve a settlement on your case.

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