Life Insurance... Claim Denied

Tara A. Miller, Q.C.  January 2021

Unfortunately, simply having life insurance in place does NOT always ensure that the life insurance will be paid out after you die. This is the 3rd in an ongoing series of 5 blog posts addressing issues that can arise with life insurance with the goal of empowering you and your family with information to ensure any life insurance you acquire will be paid after your death.  Today’s post reviews relevant considerations around how long a life insurance policy has been in place and how that time frame can impact the validity of a denial of payment by the insurance company.

As reviewed in Life Insurance… Legal 101 /, a failure to disclose a material fact when applying for life insurance can result in the insurance company denying payment of the life insurance amount after a person has died by voiding the policy. Something is considered “material” if the insurance company would have declined to issue the life insurance policy or required a higher premium at the initial application stage had they known the full detail about the information they maintain was concealed or misrepresented. Material information which was innocently or negligently withheld from a life insurance application can result in the voiding of a life insurance policy which has been in place for less than 2 years in what is referred to as the “contestability period“.

After 2 years, however, the ability for an insurer to void a policy is significantly more difficult as the insurance company has the burden of showing that the material information they say was concealed or misrepresented was done fraudulently. After the two year period, the person whose life is insured will be held covered if the material misrepresentation or non-disclosure was made innocently or negligently.

Section 186(2) of the Nova Scotia Insurance Act provides that a life insurance policy in place for two years or more cannot be voided unless there was fraud:

Contract Not Voidable

186 (2) Subject to subsection (3), where a contract has been in effect for two years during the lifetime of the person whose life is insured, a failure to disclose, or a misrepresentation of, a fact required to be disclosed by Section 185 does not, in the absence of fraud, render the contract voidable.

To constitute fraud, caselaw has estatblished the insurance company must prove that:

1) the deception of the insured must be intentional; or

2) the statement must have been made deliberately without belief in its truth or made with recklessness for the truth; and

3) the insurance company actually relied upon the deception to its detriment.

It is important to know that if a life insurance policy in place for more than 2 years is denied on the basis of an innocent or negligence misrepresentation, then that is NOT sufficient for the insurer to establish fraud.  In the absence of fraud, the insurance benefit must be paid after 2 years.   However, if the insurer can prove fraud, then not only is the benefit not paid but the insurer is allowed to keep all of the premiums which were paid over the life of the policy.  Seeking legal advice following the denial of a claim for an assessment of the validity of the denial is wise.

The final two upcoming blog posts will review:

These blog posts are not meant to be legal advice or an exhaustive review of the law in this area.  If you or a family member require more information, please contact MDW Law to schedule a complimentary consult with one of our personal injury and insurance law team. We regularly meet with and represent clients in the denial of life insurance claims.


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