Policies and insurance contracts - Extension of contract - Premium payment - Renewals of policies - Reinstatement of policy - Interim coverage - Cancellation of policy - Change in insurability

Khosah v. Canada Life Assurance Co.

Where coverage under an original policy lapses in accordance with its own terms, the principles of contract formation, rather than contractual interpretation, may apply in determining whether a new policy has come into existence.

[2013] B.C.J. No. 99

2013 BCCA 25

British Columbia Court of Appeal

R.T.A. Low, D.M. Smith and A.W. MacKenzie JJ.A.

January 11, 2013

The issue on appeal was whether the beneficiary's deceased husband, the insured, obtained temporary insurance coverage from the insurer while the insurer processed the insured's application for reinstatement of a term life insurance policy that had lapsed due to non-payment of premiums.

The insured was intially issued a life insurance policy by the insurer under which the appeallant was a beneficiary. The policy lapsed due to non-payment of premiums. The policy provided, with respect to reinstatement, that the insured must submit a reinstatement application with evidence of insurability and that the reinstatement policy would come into force at the date on which the insurer approved the application for reinstatement.

The insurer sent the insured a contract change form which was an "omnibus form" and could be used as an application for reinstatement. The form also contained a temporary insurance agreement section. The insured filled in more than was required for an application for reinstatement, including a section which mentioned temporary insurance, but did not fill out the temporary insurance agreement section. The insured also sent in a cheque for an amount larger than what was required to cover his arrears.

In January the insured forwarded the necessary evidence of insurability. The insurer processed the application on February 8 and decided to deny reinstatement. The insured died on February 13. The insurer sent a letter denying reinstatement on February 16.

The beneficiary brought a claim against the insurer arguing the insured was covered by a temporary insurance policy. This action proceeded by way of summary trial. The trial judge found the critical issue was whether a contract for temporary insurance between the insured and the insurer had come into excistence. The trial judge applied the principles of contract formation and considered whether there had been offer and acceptance.

The trial judge found that, the application in question constituted an offer by the insurer to provide temporary insurance to qualified persons. In this case there was no offer made by the insurer because the application form was provided to the insured on the basis of his application for reinstatement and the applications instructions did not contemplate completion of the temporary insurance application section on such an application. Acceptance of the offer for temporary insurance would occur when a qualified applicant completed the application, including the temporary insurance agreement section. In this case, there was no evidence indicating the insured had unequivocally accepted the temporary insurance agreement.

The trial judge concluded there had been no offer of temporary insurance by the insurer and, even if there had been, there was no acceptance on the part of the insured. The Court of Appeal upheld the trial judge's decision and stated there was no error in applying principles of contract formation rather than contract interpretation.