Action for return of premiums paid of key man insurance policies dismissed.

[2011] O.J. No. 3387

Ontario Superior Court of Justice

M.A. Penny J.

January 21, 2011

The plaintiff commenced an action for the return of insurance premiums it paid with respect to two life insurance policies. The two policies related to key man insurance with respect to the life of the Vice President and 50% owner of now bankrupt company. In anticipation of the likely bankruptcy, the plaintiff was incorporated with a view to buying its assets and carrying on the business. With the bankruptcy trustee’s consent, this plaintiff almost immediately began operating the business of the bankrupt company post-bankruptcy. The plaintiff took over payment of the premiums on the insurance policies. The plaintiff eventually stopped payment with respect to the insurance policies, the insurer cancelled the policies, and the plaintiff commenced an action for return of premiums paid.

Essentially, the plaintiff argued that the premiums were paid under a mistake of fact; there was no consensus ad idem and therefore no bargain; that there was a total failure of consideration; that the plaintiff paid the premiums but got nothing for it because the ownership and benefit of the policies were never transferred from the bankrupt company to the plaintiff; and the financial advisor who placed the life insurance policies made misrepresentations for which the insurer was responsible.

In the result, the Court found that the plaintiff had not discharged the onus of establishing that it had valid legal grounds for return of the premiums paid and the action was dismissed.