At our weekly firm meeting this morning, Matthew Umbrio addressed the Ontario Superior Court decision of The Estate of Donald Farb v. Manulife, 2020 ONSC 3037. The applicant was the estate for Mr. Farb, who sought reimbursement for hospital expenses incurred while on vacation in Florida.
Manulife had denied his claim on the grounds of misrepresentation. The estate brought an application under Rule 14.05(3), seeking judicial statutory and contractual interpretation of the travel insurance policy, with respect to reimbursement for Mr. Farb’s claim.
Prior to leaving on his trip to Florida, Mr. Farb phoned Manulife to renew his travel insurance policy. During the call, he answered no to questions about prescribed medications and pre-existing health conditions. Based on these answers, the policy was issued and Mr. Farb went on his vacation.
The focus of the Notice of Application was not on the correctness nor the merits of the “no” answers Mr. Farb had provided, however.
Instead, the estate argued that the proper interpretation of Statutory Condition 2, a provision prescribed by s.300 of the Insurance Act, was that Manulife could not rely on any of the “no” medical answers provided by Mr. Farb at the time of the application to deny coverage unless these answers were contained in the application or any other written statements furnished as evidence of insurability. The Statutory Condition reads as follows:
No statement made by the insured or person insured at the time of application for this contract shall be used in defence of a claim under or to avoid this contract unless it is contained in the insurability [emphasis added].
Manulife opposed this interpretation of the condition, arguing that a proper and contextual interpretation does not require a written application and fully allows a telephone application. Expert evidence was adduced by Manulife that showed the most common purchase method for travel insurance is by phone, which has become normal industry practice.
Justice Belobaba reviewed the arguments and noted that this dispute could be handled in a much more sensible fashion. The Insurance Act was designed to protect both insurers and the insured. This is accomplished by imposing a duty of good faith on the applicant and prescribing a significant sanction for failure to disclose.
The applicant is also protected due to the statutory requirement that the insurer provide a copy of both the policy and the application. Further protection is afforded to the insured with the prohibition against the insurer’s cancellation of a policy for alleged misstatements, unless those misstatements were contained in the application.
The purpose of requiring the application to be in written form is to provide an applicant with the opportunity to review their answers and make any necessary corrections before the representations become a basis for cancellation.
Essentially, the issue before Justice Belobaba was not whether the insurance was purchased through a telephone application, but whether as part of this process the insured was provided with a written copy of his application.
In reviewing the material facts, which were not in dispute, Justice Belobaba found that the Manulife representative had taken Mr. Farb’s information during the phone call, filled out the application, and mailed and e-mailed copies to Mr. Farb for his review.
Further, the transcript of the phone call, along with the mailed and e-mailed materials, all clearly stipulated that any misrepresentations of his medical answers would result in the contract being null and void. His Honour stated that he reviewed the materials, and listened to the recording of the call, and found that there was no evidence of any untoward practices nor any evidence of undue pressure on the applicant.
Based on the above, Justice Belobaba concluded that the consumer protection objective of the Insurance Act had been met based on Manulife’s application process.
His Honour did not agree, however, with Manulife’s submissions regarding the definition of “application”. Manulife had argued that the telephone application was enough to meet the Statutory Condition, even without the provision of further written materials, due to the change in wording under Part VII of the Insurance Act in 2012.
Justice Belobaba dismissed this argument, holding that insurers could then cancel coverage based solely on incorrect answers provided in telephone interviews without giving consumers the opportunity to correct their answers.
The application was dismissed in favour of Manulife.