On March 15, 2013, the Quebec Court of Appeal in Axa Assurances v. L.S.1 set the record straight on the threshold an insurer must achieve when declaring an insurance policy void, confirming its prior decisions in Nourcy2 and Poirier-Wilson3. The Court of Appeal reminded us that it is not only in cases where coverage would have been “refused” that an insurer is justified to rescind the policy but also when the undisclosed circumstances would have resulted in a different decision, including delaying the application, asking for an additional premium, or adding an exclusion.
Looking at the facts
In January 2006, the Respondent, Ms. S., applied for life and critical illness insurance with the Appellant, Axa Assurances Inc. (“Axa”). The Respondent did not accurately answer the relevant medical questions in the application form, noting simply that she was being followed by a physician for her “annual checkup”. She denied having ever been diagnosed with, or having experienced symptoms of, heart problems (chest pains, palpitations, high blood pressure, heart murmur, etc.) or nervous system disorders (convulsions, epilepsy, headache, paralysis, depression or other mental or nervous disorders). Thus, based on the Respondent’s answers and without any further verifications, Axa issued life and critical illness insurance policies to the Respondent.
On October 14, 2006, the Respondent was diagnosed with ovarian cancer and submitted a claim with Axa under her critical illness policy. Axa then obtained the Respondent’s medical records and learned that she had consulted with several medical specialists. Indeed, the medical records showed that in 2005, the Respondent had been diagnosed with a mild mitral and aortic insufficiency as well as with major depression and an anxiety disorder. As a result, Axa refused to indemnify the Respondent and declared the policy void. In response, the Respondent commenced legal proceedings seeking recovery of the proceeds of her critical illness policy in the amount of $100,000.
The trial judge granted the Respondent’s motion on the basis that the evidence was insufficient to establish that Axa would have refused to issue the policy had it known the Respondent’s medical history. In this respect, Axa’s representatives and an independent underwriter testified at trial that had they known about the Respondent’s major depression and an anxiety disorder, they would have delayed the issuance of the policy for a year. With respect to the Respondent’s diagnosis of mild mitral and aortic insufficiency, the expert testified that she would have issued the policy with an exclusion for valve replacements. Axa’s representatives confirmed that for their part, rather than to provide an exclusion for valve replacements, they would have issued the policy subject to an additional premium. For the trial judge, this confirmed that the issuance of the policy would not have been “refused” per se so no “negative consequence” would have ensued from the insured’s misrepresentations.
Axa appealed the Superior Court’s decision and the Quebec Court of Appeal ultimately overturned the trial judge’s decision. In addition to other overriding errors in the appreciation of the evidence by the trial judge – such as the fact that the Respondent was allegedly not aware of her medical condition – the Court of Appeal held that Axa’s representatives had demonstrated that, had they been aware of the Respondent’s diagnosis of major depression and anxiety disorder, Axa would have delayed its decision to insure the Respondent by a year in order to assess the evolution of her condition. This was corroborated by an independent underwriter. With respect to the mitral and aortic insufficiency, the evidence demonstrated that although Axa would have issued the policy with an additional premium, said premium would represent an increase of nearly 100%. Thus, it is clear that the Respondent’s misrepresentations would have had a “negative consequence”, contrary to the conclusion of the trial judge.
The Court of Appeal thus found that Axa had met its burden of proof as required by Articles 2408 and 2410 of the Civil Code of Quebec. Axa would not have assumed the risk of insuring the Respondent had her medical conditions been disclosed and a reasonable insurer placed under the same circumstances would have reached the same conclusion.
Setting the record straight
This recent decision thus sets the record straight as to what burden of proof must be satisfied by an insurer in justifying its decision to void an insurance policy on the basis of an insured’s misrepresentations and omissions. As in Nourcy and Poirier-Wilson, the Court of Appeal reminded us that evidence which demonstrates that an insurer would have deferred its decision or that it would have agreed to insure contingent on different conditions is sufficient to justify the rescission of the policy. Accordingly, the burden of proof is not whether the insurer would have plainly “refused” to issue the policy, as had been suggested by the trial judge.