On June 22, 2020, Justice Belobaba of the Ontario Superior Court of Justice rendered his decision in Estate of Donald Farb v Manulife, affirming that answers provided via telephone to an insurance company and which the consumer has the opportunity to review in written form comply with Statutory Condition 2 in section 308 of the Insurance Act. 

Statutory Condition 2 reads as follows:

No statement made by the insured or person insured at the time of application for this contract shall be used in defence of a claim under or to avoid this contract unless it is contained in the application or any other written statements or answers furnished as evidence of insurability [emphasis added].

Facts

Before travelling to Florida, Mr. Donald Farb telephoned Manulife to renew his travel insurance policy via telephone. During the short phone call with the insurance representative, Mr. Farb responded “no” to questions about prescribed medications and pre-existing health conditions. His travel policy was issued and he travelled to Florida. Mr. Farb was then unexpectedly hospitalized and incurred $134,479 USD in hospital expenses. His claim for reimbursement of these expenses was denied by Manulife on grounds of misrepresentation. While renewing his policy over the telephone, Mr. Farb had provided inaccurate answers to questions about current medications and treatment for kidney disorder.Mr. Farb sadly passed before this matter was resolved, so his estate brought this application on his behalf for the reimbursement of his hospital expenses. 

Issue:

The primary focus of this application was the interpretation of Statutory Condition 2, a provision that is prescribed by s. 300 of the Insurance Act. The provision is also set out as an express term in the insurance contract.

Mr. Farb’s estate argued that Manulife cannot rely on any of Mr. Farb’s “no” responses concerning his medical history to deny coverage, unless these answers were contained “in the application or any other written statements or answers furnished as evidence of insurability.” On the other hand, Manulife argued that Statutory Condition 2 does not require the application to be in writing or even to have a written component and that the telephone interview alone was an application. 

Holding: 

Justice Belobaba rejected Manulife’s submission because it would allow insurers to cancel coverage simply due to incorrect answers provided in telephone interviews. At some point during the application process, the insured must be provided with a written version of the application for careful review and correction. As such, the estate’s application was dismissed. Justice Belobaba found that Manulife’s telephone application process complied with the written application requirements. In this case, Manulife’s written version of the telephone application was both emailed and mailed to Mr. Farb for review before the policy took effect. Manulife was entitled to reject his application because Mr. Farb had two months to review the policy before travelling, and was repeatedly warned that a failure to do so would render the policy null and void and no coverage would be available.

Analysis: 

Justice Belobaba began his analysis by first turning emphasizing that the Insurance Act seeks to protect both the insurance company and the consumers. Specifically, he noted that insurance companies are protected by the duty of utmost good faith and full disclosure on the part of the consumer, whereas consumers are protected by requiring insurance companies to provide copies of both the policy and the application given the significance of misstatement. Justice Belobaba clarified that the issue was not whether Mr. Farb purchased the travel insurance via a telephone application process. Rather, the issue was whether he was provided with a written copy of his application for review and correction before the representations take effect and became the basis for possible cancellation. 

In this case, the insured was reminded six times after his answers were taken over the telephone to review the medical answers provided and advise the representative, before his scheduled trip, if any answers were untrue or incorrect. Otherwise, there would be no coverage. The information page for his review included three additional warnings and noted again that all of this was part of the application process. Mr. Farb had two months to complete this review but there was no evidence that he ever contacted Manulife to correct his responses.

Takeaways: 

• Be warned: Insurers must take note that when conducting telephone interviews to sell or renew existing insurance policies, the insured or potential insured must be given the opportunity to review their written form application prior to the policy taking effect. 
• Be alert: Insureds must be mindful of their duty to disclose and the consequences of their failure to respond truthfully. Likewise, insureds must be attentive during the application process, including their review of the written form of their application to ensure the accuracy of same prior to the policy taking effect. 

Sarah Reich and Roberto Suppa, articling student