Full Disclosure in Life Insurance Applications

The Court of Appeal released an interesting decision yesterday regarding the need to be fully candid in applications for life insurance.

In Mohammad v. The Manufacturers Life Insurance Company, 2020 ONCA 57, the deceased was part of a terrorist group outside of Canada. In 1968, he stormed a civilian aircraft throwing grenades and firing ammunition. At least one person was killed. He was convicted of criminal offences.

Not long after he was convicted, the deceased was released from prison as part of a hostage negotiation. He then moved to Lebanon. In 1987, he came to Canada fraudulently by using an alias. He applied for life insurance.

Eventually, the deceased’s past activities were discovered by Canadian authorities. In 2013, he was deported to Lebanon. He died from lung cancer in 2015. His spouse sought a death benefit of $75,000 from Manulife under the life insurance policy.

On a summary judgment motion, the court found in favour of the spouse. The Court of Appeal reversed this decision.

Even though Manulife did not ask questions regarding the deceased’s immigration status or criminal history, he had a duty to disclose this information. Section 183(1) of the Insurance Act requires material risks to be disclosed in applications for life insurance.

The Court of Appeal held that the past actions of the deceased were material to the risk. The deceased was well aware that his past activities put him at serious risk of physical harm. He intentionally withheld this information from Manulife.

As a result, the deceased’s spouse is not entitled to the life insurance proceeds.