In a recent judgment, the Court of Appeal reviews and confirms the Superior Court's decision in Paul-Hus v. Sun Life Assurance Company, which was commented on in our newsletter of October 31, 2023.
Review of the facts
On March 13, 2015, Automobiles Illimitées, of which the applicant Paul-Hus is the sole shareholder, applied for a critical illness policy with Sun Life. The insured was the applicant, and the beneficiary was Automobiles Illimitées.
On March 17, 2015, during a telephone interview, Paul-Hus was asked questions about his lifestyle, state of health and medical history. As he mentioned nothing of significance, Sun Life approved his application and issued the policy.
On August 16, 2018, Paul-Hus submitted a claim to Sun Life. In the claim, Dr. Brunet, his neurologist of the past few years, stated that he had diagnosed his patient with progressive muscular atrophy, the first symptoms of which appeared in 2013.
After investigating the situation, Sun Life advised Paul-Hus that it would refuse to indemnify him, as he had not answered three questions on the questionnaire correctly, and that, had he done so, it would not have issued the critical illness policy. It is important to note that Automobiles Illimitées had filed for bankruptcy ten days earlier, on December 12, 2018.
Finally, on May 31, 2021, Paul-Hus served Sun Life with an Application to Initiate Proceedings (the "Application"), alleging a diagnosis of amyotrophic lateral sclerosis (ALS).
Judgment of first instance
The Superior Court concluded that Paul-Hus' declarations at the time he took out the policy were inaccurate and likely to lead to the policy's nullity. With respect to the argument of the fraudulent nature of the insured's misrepresentations, the burden of proof lies with the insurer seeking to cancel a policy that has been in force for over two years (article 2424 C.C.Q.). The Court pointed out that it is not enough for an insured to claim that one has acted in good faith to justify such omissions. In the Court's opinion, these elements clearly demonstrated Paul-Hus' intention to conceal his true state of health to deceive Sun Life and thus obtain his desired insurance coverage. He could not have been unaware that his symptoms and the ongoing investigation would have significantly influenced the insurer's decision to accept the risk. His evasive answers to the questionnaire were therefore perplexing. Accordingly, the Court declared the insurance policy null and void ab initio.
Notwithstanding the foregoing, the Court went one step further and concluded that the action could have also been dismissed for lack of interest on the part of Paul-Hus. Indeed, it is important to remember that, while Paul-Hus is the person to be insured, the beneficiary of the policy is Automobiles Illimitées. However, the company went bankrupt in 2018. Thus, as Sun Life pointed out at the hearing, and as the Court correctly upheld, only Automobiles Illimitées had the interest required to claim payment of the critical illness insurance benefits.
Appeal dismissed
The Court of Appeal considered the issue of interest to act and confirmed the trial judge's conclusion that the appellant had no interest in claiming the critical illness insurance benefit. Indeed, the insurance was underwritten by Automobiles Illimitées, a company of which the appellant was the sole shareholder and director, and no change of beneficiary was made following the company's bankruptcy. Thus, the Court concluded that "[had] the indemnity been paid, the beneficiary would have been the mass of creditors in the bankruptcy of Automobiles Illimitées. This is sufficient to justify the dismissal of the appeal."
However, the Court went further and considered the fraudulent nature of Paul-Hus' misrepresentations. It determined that the trial judge's conclusion—that the appellant had committed fraud within the meaning of article 2424 C.C.Q. by knowingly concealing essential medical information from Sun Life Canada to obtain insurance benefits through his company—was indisputable.
More specifically, the Court confirmed that Sun Life Canada had to demonstrate fraud, and that it had met its burden of proof, notably in consideration of the following elements, all of which were examined at trial:
- Paul-Hus' blatant failure to disclose information that clearly affected his insurability
- His awareness of several pieces of information and medical investigations that were concurrent with his interview with the Sun Life Canada representative
- His evasive answers on cross-examination in relation to the answers he provided in the questionnaire
- His manner of testifying at trial
The Court of Appeal also emphasized the grave nature of Paul-Hus' health problems and the extensive medical investigations in progress, which Paul-Hus clearly knew about and which he clearly had a duty to disclose to the insurer, even in the absence of any specific questions.
In conclusion, the Court confirmed that the Superior Court's finding of fraud was a mixed question of fact and law. Considering that the finding was firmly anchored in the evidence, and that the appellant raised no manifest and determinative error, the Court of Appeal concluded that Sun Life Canada was justified in seeking the ab initio nullity of the insurance policy, and that the plaintiff's appeal should be dismissed.
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