The decision in Estate of Kareem Watson et al v. RBC, 2021 ONSC 5305, addresses some of the evidence that may be required when an insurer attempts to rely on a material misrepresentation as a basis for voiding an insurance policy.
Watson and Doucette were common law partners. They went to an RBC branch and were approved for life insurance policies. On the application for insurance, there was a question on whether the applicant had any criminal offences within the past five years or whether there were any charges pending. Watson answered “no” to this question.
Watson was subsequently murdered. Doucette filed a claim for a death benefit of $250,000. While conducting an online search, an RBC employee found articles regarding criminal charges against Watson. RBC then obtained court documents indicating that Watson had been charged with human trafficking and assault. The charges were outstanding when Watson applied for the life insurance policy.
Subsequently, an underwriting manager at RBC prepared an internal memorandum stating that, based on Watson’s criminal history, the policy would not have been approved had the history been fully and accurately disclosed. RBC denied coverage on the basis that Watson misrepresented or failed to disclose a material fact in the application for insurance.
In order to void the insurance policy, RBC had to prove that the misrepresentation was, in fact, material. An omitted fact is material when it can be shown that, if the fact was properly disclosed, it would influence a reasonable insurer to decline the risk, to accept a different risk, or to charge a higher premium. The test is objective, and not subjective or particular to whatever insurer may be involved.
Justice Mundhane stated that materiality must be established through relevant and reliable evidence. Her Honour noted that, in prior cases, insurers have relied on medical experts, as well as experts related to underwriting practices and procedures.
In the case at hand, RBC only relied on the unsworn, unsigned internal memorandum prepared by the underwriting manager which indicated that the policy would not have been approved had Watson’s criminal history been fully and accurately declared. Justice Mundhane described this as a “cover-your-butt” memorandum.
The memorandum was conclusory in nature and did not offer supporting analysis or clear information about how the pending criminal charges were material in determining Watson’s eligibility for life insurance or evaluating his insurance risk. No evidence was provided on RBC’s eligibility policies, the practices of comparable insurers, or relevant actuarial information.
Therefore, Justice Mundhane held that RBC had not proven that Watson omitted or misrepresented a material fact. Her Honour concluded that RBC did not have lawful authority to void the policy. RBC was ordered to pay Doucette damages of $250,000, plus interest and full indemnity costs.