Insurance Law: Material Non-Disclosure Results in No Coverage
It is not an usual story: an insurance applicant does not make full and frank disclosure in their insurance application. This might result from confusion about the form, embarrassment, not appreciating the importance of disclosure or even an unwillingness to disclose certain information. The risk of such non-disclosure is that it might result in claim properly being denied even if the non-disclosure does not relate to the harm which befalls the insured. Such non-disclosure and denial was the subject of the recent decision of Batanova v London Life Insurance Company, 2019 BCSC 1147 (CanLII).
In Batanova the insured died of a heart attack caused by coronary artery disease. In his application, the insured did not properly disclose issues with his back, his back pain, his arthritis, his spina bifida occulta, that he used medical marijuana for treatment or the full extent of his cigarette use. The insurer denied a claim made under the policy by beneficiary, the deceased’s sister, based on such incorrect information furnished by the insured. The beneficiary then sued for the policy.
The Court noted the requirements within the Insurance Act, R.S.B.C. 2012, c. 1 for insureds to disclose every fact material to insurance to the insurer. In law, whether the non-disclosure is innocent or not, the result of non-disclosure may be an insurer voiding a contract if it may argue that the non-disclosure is material.
Whether non-disclosure is material at law is determined through the theoretical lens of a reasonable insurer. If the non-disclosed subject matter might have caused a reasonable insurer to increase the premium or decline coverage, it is considered material. A non-disclosure does not need to relate to the actual claim made under the policy to potentially void the policy, so long as the non-disclosure is material is material.
In Batanova the Court found that the insured answered many questions in his application incorrectly, incompletely or not at all. The Court determined this by considering the theoretical understanding of a reasonable layperson reading the application questions. The insurer was not under an obligation to investigate the information provided to it; responsibility lies with the insured to provide correct information. The Court noted that the fact that questions were asked on an application suggests they are material to the insurer.
The Court ultimately found that there was non-disclosure of material facts and upheld the decision of the insurer to deny the claim under the policy.
The Batanova decision is a reminder that parties should carefully complete insurance application forms. While circumstances can arise when even material non-disclosure does not void insurance -for example, when correct information is provided by an insured to a broker who records the information incorrectly- insureds should carefully review their application forms to ensure no mistakes are made. Even if a broker is assisting in completing the paperwork, insureds should review the forms for accuracy once completed.
Further, a prudent person should always assume that the insurer will learn about any incorrect information in an insurance application. Insurers have a clear interest in finding any excuse to deny a claim and non-disclosure of a material fact unrelated to a claim often provides such an excuse. Likewise, every insured has a clear interest in avoiding any reasonable denial of their claims by properly and completely filling out all insurance application forms and to make inquiries of the insurer or insurance broker if there are any questions or concerns about how to complete the form or what information is being sought.