Introduction
The recent decision in Estate of Kareem Watson et al v RBC provides guidance on the type of evidence a court may expect when an insurer wishes to rely on an insured’s material misrepresentation in order to void an insurance policy.
Mr. Watson and Ms. Doucette were common law partners. On September 22, 2016, they attended an RBC branch where they were issued life insurance policies after completing RBC’s standard application form in the presence of an RBC representative. No clarification questions were asked by Mr. Watson and no follow up questions were asked by the RBC representative. Mr. Watson answered “no” to a question in the application which asked:
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?
In July 2018, Mr. Watson was murdered and Ms. Doucette filed a claim under the policy for the death benefit of $250,000. RBC subsequently discovered that Mr. Watson was charged with human trafficking and assault on October 19, 2015 and pled guilty to assault on September 30, 2016.
On March 5, 2019, an RBC underwriting manager wrote an internal memorandum to a colleague stating that the life insurance policy would not have been approved if Mr. Watson’s criminal history was fully and accurately provided. On this basis, RBC denied coverage and returned Mr. Watson’s premiums.
Analysis
The Superior Court began by noting that both the Insurance Act and the common law create a positive duty on insureds to disclose in their application every fact within their knowledge that is material to the insurance. This disclosure obligation is not limited only to accurately answering questions stated in the application correctly; even innocent non-disclosure of a material fact can invalidate a life insurance policy.
Mr. Watson clearly had knowledge of his criminal charges and did not disclose them on his application. However, RBC still bore the onus of establishing that the fact of his criminal history was material to the insurance. An omitted or misrepresented fact is material if that fact, properly disclosed, would influence a reasonable insurer to decline the risk, accept a different risk, or charge a higher premium. Materiality is assessed from the perspective of the insurer. However, the test is objective, not subjective to the particular insurer.
The court was not convinced that Mr. Watson’s answer regarding his criminal history amounted to a material misrepresentation. Materiality must be established through relevant and reliable evidence. In similar prior cases, insurers seeking to rely on a material misrepresentation have presented evidence of their underwriting policies, actuarial information, the practices of comparable insurers, as well as evidence from medical experts and experts in underwriting practices and procedures. However, in this case RBC relied exclusively on their internal memorandum which was conclusory in nature and lacked supporting analysis and information on how Mr. Watson’s criminal history was material to his eligibility and insurance risk. The Court un-affectionately described the memorandum as follows:
The Memorandum reads like what it is: a hastily written bureaucratic missive created for the sole purpose of providing internal justification for denying Doucette’s claim. It was what lawyers call a “cover-your-butt” memo.
In any event, RBC also did not make the author of the memorandum available for cross-examination. Therefore, it was hearsay and not afforded any weight.
Finally, in addition to ordering RBC to pay $250,000 in damages plus pre-judgment interest, the court ordered RBC to pay the Applicant’s full indemnity costs on the basis that the entire application could have been avoided if RBC drafted clearer questions in their application document or if their representative asked appropriate follow up questions during the in-person interview process.
Guidance for both Insureds and Insurers
This case acts as a reminder for insureds to make full and frank disclosure when applying for insurance, as even innocent misrepresentations can be material and result in the voiding of an insurance policy.
More pointedly, the decision acts as a reminder for insurers to provide a court with sufficient evidence beyond internal self-serving evidence in order to convince a court to find that an insured’s misrepresentation was material. It is also a reminder of the need to draft written application questions clearly as a court may be unsympathetic to insurers who, as the court put it, “seeks to rely on their own poorly-drafted Application” to deny a benefit to an insured.
