On March 15, 2013, the Quebec Court of Appeal reversed a judgment of the Superior Court which had granted an insured’s motion to institute proceedings seeking payment of the proceeds of a critical illness insurance policy.1 In January 2006, the Respondent, who was then 50 years old, had filled out two forms applying for life and critical illness insurance coverage with the Appellant AXA Assurances inc. (AXA). The answers provided by the Respondent indicated that she had never received a diagnosis or experienced symptoms of any 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). Based on these statements, AXA issued a life and critical illness insurance policy on January 25, 2006 and set the annual premium accordingly. Eleven months later, the Respondent submitted a claim to AXA for a $100,000 benefit based on a diagnosis of ovarian cancer received in October 2006. AXA refused to indemnify the Respondent, citing discrepancies ascertained following an examination of her medical records, which revealed that she had been diagnosed with major depression twice in the fall of 2005. The records also showed that a diagnosis of mitral and aortic insufficiency (heart murmur) had been made in July 2005. Following AXA’s refusal to indemnify her, the Respondent commenced legal proceedings seeking payment of the critical illness insurance proceeds in the amount of $100,000.
The Respondent’s action against AXA was maintained in the lower court. The trial judge found that the evidence had not shown that the Respondent had been made aware of the diagnoses of depression in the fall of 2005 and mitral and aortic insufficiency in July 2005. The trial judge also considered that AXA had not met the burden of demonstrating that it would have refused to issue the critical illness insurance policy had it been aware of this information in January 2006. AXA had called both its own and another insurer’s underwriters to testify at the trial. The underwriters were unanimous in asserting that if the Respondent’s depression had been known to AXA or to the other insurer, issuance of the policy would have been deferred for a year. As far as the mitral and aortic insufficiency diagnosis was concerned, the evidence revealed that AXA would have issued the policy subject to an additional premium if it had been aware of this risk, while the other insurer would have issued the policy but would have added an exclusion for valve replacement if this diagnosis had been brought to its attention. The trial judge did not consider this evidence sufficient to demonstrate that a “negative consequence” would have ensued from the facts concealed by the Respondent and therefore ordered the Appellant AXA to pay the proceeds of the critical illness insurance.
The Court of Appeal found a number of overriding errors in the trial judge’s appraisal of the evidence. First, the Court considered that the trial judge erred in finding that the Respondent was not aware that she had a heart murmur (mitral and aortic insufficiency), the evidence presented at trial having clearly revealed that she knew of the existence of this heart condition which had afflicted her since birth. The Court of Appeal was also of the view that the trial judge erred in finding that the diagnoses of depression made in September and October 2005 had not been communicated to the Respondent. Lastly and more significantly for those monitoring this case, the Court of Appeal determined that the trial judge made a palpable error in asserting that the facts relating to her medical condition which were concealed by the Respondent would not have had a negative impact on the issuance of the insurance policy. In the view of the Court of Appeal, the evidence submitted by AXA to the effect that its own and another insurer’s underwriters would all have deferred the issuance of the policy to the following year, i.e., to a date subsequent to the diagnosis of the critical illness that gave rise to the Respondent’s claim, was sufficient to meet the burden imposed by articles 2408 and 2410 C.C.Q. in order for an insurance policy to be declared null (a failure to disclose facts likely to materially influence an insurer in the setting of the premium, the appraisal of the risk or the decision to cover it). The Court of Appeal found that the Respondent had concealed material facts in that she had been aware of her medical history and had deprived AXA of the benefit of information that it needed to properly appraise the risk and set the premium. For these reasons, AXA was within its rights to seek the nullity of the insurance policy ab initio and to offer to return to the Respondent the premiums she had already paid.
This decision by the Court of Appeal adds clarity to the state of the law on insurance of persons as to the burden that an insurer must meet in order to invoke the provisions of the Civil Code of Québec to obtain the nullity of a policy based on misrepresentation by the applicant. The ruling cites with approval the decisions in Nourcy2 and Poirier-Wilson,3 both by the same Court, holding that a demonstration by an insurer that it would have postponed accepting an application for insurance to allow for a more in-depth analysis of the evolution of the applicant’s medical condition was sufficient in and of itself to meet the test in article 2408 C.C.Q. requiring the facts concealed by the client to be determinative for the appraisal of the risk by the insurer. In so doing, the Court of Appeal rejected the trial judge’s reasoning that only a showing by an insurer that it would have refused to issue the policy was sufficient to have the policy declared null ab initio for concealment or misrepresentation by the client.