DATE: 20010227

DOCKET: C32606

COURT OF APPEAL FOR ONTARIO

CATZMAN, DOHERTY and SIMMONS JJ.A.

BETWEEN:

THUAN DUONG

Thomas G. Conway,

for the appellant

Plaintiff/Appellant

–and–

NN LIFE INSURANCE COMPANY

John Connolly,

OF CANADA

for the respondent

Defendant/Respondent

Heard: February 7, 2001

On appeal from the judgment of Justice Gordon D. Sedgwick, dated June 30, 1999.

BY THE COURT:

The appeal

[1] The plaintiff appeals the judgment of Sedgwick J. dismissing, with costs, his action for $100,000 for the proceeds of a policy of life insurance on the lives of the plaintiff, his common law spouse (“Nguyen”) and their son (“Albert”). In his reasons, Sedgwick J. found that there were material misrepresentations in the application with respect to Nguyen’s health and medical treatment, as a result of which the defendant was entitled to avoid the policy. He also found against the plaintiff’s alternative suggested ground of liability that, because the defendant continued to accept premiums under the policy after it learned of Nguyen’s death and the material misrepresentations but failed to refund the premiums paid under the policy, it had elected to treat the policy as valid and subsisting and was estopped from relying on the material misrepresentations to avoid it. On behalf of the appellant, Mr. Conway submitted that both of these findings were in error.

Material misrepresentation

[2] In his reasons for judgment, Sedgwick J. held that he was not satisfied on a balance of probabilities that the alleged misrepresentations were made fraudulently but that:

Having reviewed the answers [given in the life insurance application] and concluded that four of them are false and amount to failure to disclose facts within their knowledge as to the medical condition of Nguyen that were material to the insurance, I am satisfied on a balance of probabilities that the alternative defence of NN Life based on the general provision of the policy and ss. 183 and 184 of the Insurance Act ... must succeed. In my view, it follows that NN Life was entitled to avoid Policy No. 1152359.

[3] There was evidence before Sedgwick J. that supported the finding that the four answers were material misrepresentations, and no palpable and overriding error that would warrant our interference with that finding has been shown.

[4] We reject this ground of appeal.

Estoppel

[5] Mr. Conway’s principal submission before us was that Sedgwick J. erred in failing to find on the evidence that the respondent was estopped from avoiding its obligation to pay under the policy because it had continued to accept and to retain premiums paid under the policy and thereby admitted that the policy continued to be in effect.

[6] The factual foundation for this submission, in brief compass, is as follows. The policy on which the appellant sued (“the original policy”) came into effect in September 1991. Premiums on the original policy were paid by pre-authorized deduction from the appellant’s bank account.

[7] In January 1993, the respondent received a change application form, purportedly signed by the appellant as owner of the original policy and by Nguyen as the life insured. The appellant alleged, and Sedgwick J. found, that the signature on the change application form was not that of the appellant and that he had no knowledge of the requested change until after Nguyen died. In response to the change application form, the respondent deleted Nguyen as a life insured under the original policy and created a second policy with Nguyen as the life insured, naming her sister in trust for Albert as the beneficiary. Premiums on the second policy were paid out of the sister’s bank account.

[8] Nguyen died in July 1993. By letter dated September 9, 1994 (“the September letter”), a copy of which was sent to the solicitor for Nguyen’s sister, the respondent advised the appellant’s solicitor that it had acted in good faith in processing the change effected in January 1993 and could not “with certainty state whether the severance was or was not accomplished by fraudulent means” and “would require a court order to rule on entitlement”. It denied liability under either policy on the ground of misrepresentation of Nguyen’s medical history, and refunded to the solicitor for Nguyen’s sister the premiums paid under the second policy. It continued to accept the premiums paid on the original policy, in the same monthly amount, until December 1995, after this action was commenced and approximately six months after delivery of its statement of defence.

[9] Sedgwick J. held that , because the appellant did not sign the change application form and did not know of it, it was not binding on him. He rejected the alternative submission of estoppel in these words:

Counsel for [the appellant] advanced the argument that since NN Life continued to accept premiums under Policy No. 1152359 until December 1995 and did not cancel or terminate the policy or refund the premiums, NN Life has treated the policy as valid and subsisting and cannot now rely on fraud, misrepresentation or non-disclosure. He says the options of an insurer upon discovery of a misrepresentation are to: (1) retain the premium and treat the policy as valid and subsisting; (2) avoid the contract and return the premium ... . He says NN Life adopted option (2) by its letter to [the appellant’s] solicitor, dated September 9, 1994. No evidence was led by [the appellant] as to the period during which he continued to pay premiums. Presumably, Policy No. 1152359 remained in effect on his life and the life of his son Albert after the death of Nguyen. Evidence was led by NN Life that a refund of $834.54 was paid to the estate of Nguyen relating to Policy No. 1152878. Whether NN Life is obliged to refund premiums where a policy has been avoided due to misrepresentation is far from clear. ... On the evidence before me, I am not satisfied that [the appellant] continued to treat the insurance contract on the life of Nguyen as valid and subsisting after learning of the failure to make full disclosure of material facts relating to the health of Nguyen.

[10] We are not prepared to disturb this finding. In reaching that conclusion, we are particularly influenced by the following factors:

(a) the September letter clearly and unequivocally conveyed to the appellant its position that position that “Nguyen did not disclose her full medical history prior to the date of application on both of the above contracts”, that “had we been made aware of this medical history at the time of underwriting the risk, the coverage would not have been issued until we had the opportunity to obtain the results of the outcome from the tests that were performed on ... Nguyen”, and that “the failure to disclose her full medical history is misrepresentation within the “Voidable Contracts” provision of the contract, which permits us to render the policy contract null and void and deny death claim benefits”;

(b) while unable “with certainty [to] state whether the severance was or was not accomplished by fraudulent means”, it refunded the premiums which in good faith and on reasonable grounds it believed applied to the second policy; and

(c) although the September letter specifically indicated that the respondent’s decision “has been based on the information which we received [but that if the appellant’s solicitor had] any information which may be relevant to this claim please contract us in writing”, there is no record of any reply to that request on the part of the appellant prior to, or other than, the institution of the appellant’s action in April 1995.

[11] We reject this ground of appeal.

Costs

[12] Sedgwick J. dismissed the appellant’s action with costs. In Mr. Conway’s factum, although not in oral argument, he submitted that Sedgwick J. erred in failing to make an award of solicitor-and-client costs in favour of the appellant, even though his action was dismissed, because the respondent had made unjust allegations of fraudulent and dishonest conduct and persisted in them through trial without being able to substantiate them.

[13] In Sedgwick J.’s reasons for judgment, he indicated that the action was dismissed with costs but that, if counsel wished to address any issues relating to costs, they might do so in writing. That invitation was accepted by Mr. Conway, who wrote a lengthy letter making the submission indicated above. Counsel for the respondent replied to Mr. Conway’s submission, and Mr. Conway wrote a further letter in response. In a letter addressed to both counsel, Sedgwick J. wrote that he had considered all of their submissions. He gave it as his view that “the pleading of fraudulent misrepresentation was reasonable and warranted” and adhered to his original decision that the respondent should have its costs on a party-and-party scale in an amount to be assessed.

[14] The determination as to which party should bear the costs, and on what scale, was a matter clearly within the discretion of the trial judge. We see no error in principle in Sedgwick J.’s exercise of his discretion, nor do we view it as plainly wrong. We would not disturb his disposition of costs.

Disposition of the appeal

[15] The appeal is dismissed with costs.

Released: FEB 27 2001

Signed:

“M.A. Catzman J.A.”

MAC

“Doherty J.A.”

“J. Simmons J.A.”