Part I of this two-part series looked at the Alberta Court of Appeal's ("ABCA") decision in Thomson v ivari ("Thomson"), which found that the owner of a life insurance policy could cancel the conversion of that policy to a new policy during the ten-day "free look" period after the death of the insured life, allowing the policy owner to receive the higher death benefit under the old policy.
Part II will discuss how this decision may create a conflict in the law, which the Supreme Court of Canada recently decided not to address when it denied the insurer's application for leave to appeal the ABCA's decision.
It appears the ABCA decision departs from the British Columbia Court of Appeal's ("BCCA") assessment of the distinction between an insurance "contract" and an insurance "policy".
Insurance "contract" versus insurance "policy"
The ABCA in Thomson treated the insurance contract as having an independent existence separate from the policy. This was based on the ABCA's reading of Alberta's Insurance Act, which identifies an insurance "policy" as an "instrument evidencing an insurance contract", and potentially draws a distinction between the "policy" and the insurance contract itself. Other provincial and territorial pieces of insurance legislation, including British Columbia, have similar definitions of "policy".
However, in the 2012 decision of Paul v CUMIS ("Paul"), the BCCA treated an insurance "contract" and an insurance "policy" as one and the same. This is consistent with how the terms are defined in the federal Insurance Companies Act.
These differences in interpretation have led to very different outcomes on similar facts. In Moss v Sun Life ("Moss"), the Alberta Court of Queen's Bench found that the cancellation of a policy by the insured revived an older policy because the insurance contract did not terminate when the policy terminated. This decision was followed in Thomson, allowing the policy owner to revert back to the old policy when the new policy was cancelled.
In Paul, on the other hand, the BCCA found that a life insurance policy that had been terminated due to non-payment of premiums could not be reinstated after the death of the insured life, because it treated the insurance contract and the insurance policy as one in the same.
In Paul, a life insurance policy was terminated due to non-payment of premiums before the insured, Dennis Paul, passed away. The policy provided that it could be reinstated if the premiums were paid in 60 days. The beneficiary of the policy, Susan Paul, contacted the insurer and was erroneously advised that the policy would be reinstated upon payment of the premiums that were owing (the insurer was not advised of Mr. Paul's death). Ms. Paul paid the premiums owed before making a claim for Mr. Paul's death under the policy. The insurer declined to pay the claim, stating that the policy had terminated due to non-payment of the premiums, and that it could not be reinstated after the insured life's death.
On appeal, the BCCA agreed with the trial judge that the policy had terminated before the death of the insured and could not be reinstated as there was no life to insure – and there was no longer an insurance risk. Since the insurance contract did not continue to exist after the policy was terminated, there was no basis for reinstating it – unlike in Moss and Thomson.
To summarize, the BCCA in Paul held that the contract terminated when the policy terminated.
Application to Atlantic Canada
Thomson raises uncertainty for insurers. Insurance legislation applicable to life insurance in Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador defines an insurance "policy" in the same way as the Alberta legislation.
However, unlike British Columbia and Alberta, courts in the Atlantic provinces have yet to consider whether an insurance contract terminates when the policy terminates.
Courts in the Atlantic region appear to largely use the terms insurance "contract" and insurance "policy" interchangeably.2 The Nova Scotia Court of Appeal in Linden v CUMIS Life is one instance of a court distinguishing between the policy and the contract, by treating the policy as a component of "the entire insurance contract."3
It remains to be seen whether courts in the Atlantic provinces will follow or depart from the ABCA's decision in Thomson, if confronted with a similar issue.
Takeaways for insurers
Where the SCC has declined to reconcile the potential differences between an insurance contract and policy in the context of life insurance, insurers may want to include contractual language to the effect that termination of the insurance policy also terminates the insurance contract.
As noted in Part I, insurers may also wish to consider:
- requiring proof of insurability at the time the policy is converted; and
- having the policy explicitly state that the option to cancel, convert, etc. may only be exercised when the insured life is still alive – and that the option expires when the insured life dies.
Footnotes
1. With assistance from Jennifer Taylor (Associate) and Grace Longmire (summer student).
2. See, for example, Cameron v Economical Mutual, 2016 PESC 6 at paras 7-13; Elton Estate v Elton, 2010 NLCA 2 at para 22; Larsen v Assureway Group, 2021 NBQB 211; Industrial Alliance Insurance and Financial Services Inc. v Brine, 2015 NSCA 104, leave to appeal to SCC refused, 2016 CanLII 26761 (SCC).
3. Linden v CUMIS Life Insurance Company, 2015 NSCA 20 at para 21.
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