Fernandes v. RBC Life Insurance Company [Indexed as: Fernandes v. RBC Life Insurance Co.]

99 O.R. (3d) 627

Court of Appeal for Ontario,

Cronk, Lang and Juriansz JJ.A.

December 8, 2009

Insurance -- Material non-disclosure -- Insured failing to disclose facts related to his past medical complaints regarding his hip and back area on his application for long-term disability insurance -- Omitted facts material as they would have borne directly on insurer's assessment of risk -- Policy void for non-disclosure.

On his application for long-term disability insurance, the plaintiff failed to disclose facts related to his past medical complaints regarding his hip and back areas. He subsequently became disabled from acute meningitis and was unable to return to work as a rough carpenter. The defendant insurer took the position that the insurance policy was void for non-disclosure. In an action by the plaintiff, the trial judge ruled that the plaintiff had failed to disclose material facts in his application and that the policy was void. The plaintiff appealed.

Held, the appeal should be dismissed.

There was nothing to support the plaintiff's claim that he was obliged to disclose only "serious" or "major" medical complaints and treatments in his responses to the questions posed in the application. He was obliged to disclose every fact within his knowledge that was material to the insurance for which he was applying. There was evidence at trial from an experienced underwriter that the information omitted by the plaintiff, if disclosed, would have borne directly on the insurer's assessment of the risk and its willingness to issue long-term disability coverage, without exclusions, in the plaintiff's favour. Had it known the true facts, the defendant would have changed the policy offered to the plaintiff in a material and fundamental way.

APPEAL from the judgment of Chapnik J., 2008 CanLII 34279 (ON SC), [2008] O.J. No. 2726, 66 C.C.L.I. (4th) 115 (S.C.J.) ruling that the long-term disability policy was void.

Statutes referred to Insurance Act, R.S.O. 1990, c. I.8, s. 308(1) [page628]

Patrick Summers, for appellant. Mark E.P. Cavanaugh and Luke C. Mullin, for respondent.

[1] BY THE COURT: -- The appellant, Avelino Fernandes, appeals from the judgment of S. Chapnik J. of the Superior Court of Justice, dated July 8, 2008, ruling that the long-term disability policy issued to the appellant by the respondent, RBC Life Insurance Company ("RBC"), is void on the basis of non-disclosure by Fernandes of facts material to the insurance in his insurance application.

[2] As argued before this court, Fernandes raises two main grounds of appeal. He argues that the trial judge erred: (i) by finding that the questionnaire completed by Fernandes as part of his insurance application contained material misrepresentations regarding his medical history; and (ii) by holding that materiality was established even though the evidence indicated that coverage would have been provided by RBC subject to certain exclusions if the alleged misrepresentations had not been made. In the alternative, Fernandes submits that the trial judge erred in her assessment of costs.

[3] Notwithstanding the able submissions of Fernandes' counsel, which greatly assisted the court, we conclude that the appeal must be dismissed for the following reasons.

1. Misrepresentations

[4] We did not call on RBC to respond to Fernandes' attack on the trial judge's finding that he did not disclose and misrepresented certain facts bearing upon his insurability in his insurance application.

[5] Fernandes completed and submitted his insurance application to RBC on November 9, 2000.

[6] It is accepted that the application formed part of the policy ultimately issued by RBC.

[7] The trial judge ruled that the questions posed in the questionnaire that formed part of the application required Fernandes to disclose the identity of his attending physician, his consultation with that physician four or five months prior to the date of the insurance application regarding lumbar pain, the accurate date and purpose of his last consultation with a physician prior to the date of the insurance application and his attendances with and the treatment received by him from an orthopaedic [page629] surgeon between 1998 and 2000. The trial judge held that Fernandes failed to disclose and, in some instances, misrepresented the facts relating to each of these matters.

[8] We are satisfied that these findings were available to the trial judge on the evidence. In particular, we agree that, properly construed, the insurance questionnaire required disclosure of the matters identified by the trial judge as described above, and that such disclosure was not made. Fernandes' failure to disclose this information was a breach of his obligation to disclose all material facts bearing upon his insurability for long-term disability benefits.

[9] Further, we observe that nothing in the insurance questionnaire grounds the appellant's claim that he was obliged to disclose only "serious" or "major" medical complaints and treatments in his responses to the questions posed. The language used in the relevant questions is not qualified in this fashion. Nor do we agree with Fernandes' suggested construction of the questionnaire, read as a whole.

[10] Moreover, the trial judge implicitly rejected the bona fides of Fernandes' claim that he read the questionnaire in this way. She held that his answers to at least some of the questions in the questionnaire were knowingly misleading and that while he understood the questions asked, he "simply placed his own interpretation on them".

2. Materiality and the Issue of Exclusions

[11] Fernandes does not challenge the trial judge's holding that, as a matter of law, "There is . . . no need to relate the medical information not disclosed on the application for insurance to the subsequent disability claim" (citations omitted). As this statement was not put in issue on this appeal, we assess the trial judge's materiality findings on this basis.

[12] It is common ground that Fernandes became disabled in approximately January 2001 from acute meningitis and that, as a result, he has been unable to return to his work as a rough carpenter in the construction industry to date. It was this condition that formed the basis of his long-term disability claim in March 2001.

[13] It is also common ground that the information that Fernandes failed to disclose in the insurance questionnaire included facts related to his past medical complaints regarding his back and hip areas.

[14] Fernandes was obliged under s. 308(1) of the Insurance Act, R.S.O. 1990, c. I.8 to disclose to RBC in his insurance application every fact within his knowledge that was material to the [page630] insurance for which he was applying. The insurance application clearly and unambiguously warned that the provision of "false or incomplete answers to any question will affect the coverage and benefits available under the policy, and may mean that there will be no coverage and may result in legal action".

[15] Moreover, the insurance application signed by Fernandes contained an explicit acknowledgement by him that he was "responsible for the accuracy of the statements" contained in the application and that:

Before signing, I have verified that all answers are correct and complete . . . Inaccurate answers to any questions may affect my eligibility for coverage and/or benefits.

[16] It is unnecessary to recite in detail the specifics of the information not disclosed by Fernandes in response to the questions posed in the questionnaire. It is sufficient to note that there was evidence at trial from an experienced RBC underwriter establishing that the information omitted by Fernandes, if disclosed, would have borne directly on the insurer's assessment of risk and its willingness to issue standard long-term disability coverage, without exclusions, in Fernandes' favour. In particular, the evidence indicated that the non-disclosed medical information was significant from an underwriting perspective. There was evidence before the trial judge that this information, together with the timing of the medical-related events and the nature of Fernandes' occupation as a rough carpenter in the construction trade, would have altered RBC's risk assessment and the scope of the insurance it was prepared to offer to Fernandes.

[17] There was also evidence at trial from an independent underwriting expert that RBC's approach to risk assessment and the claim, which would have resulted in exclusions to the coverage, conformed with industry underwriting standards.

[18] The trial judge, as she was entitled to do, accepted this evidence. Accordingly, there was a firm evidential foundation for her ruling that [at para. 32]:

[T]he matters concealed or misrepresented in this case would, on a fair and reasonable consideration of the evidence, have been material to the risk and would have influenced [RBC] to decline to issue the standard policy it offered to [Fernandes]. In the circumstances, I find that, in treating [Fernandes'] untrue or incomplete answers as material, the defendant was acting as a reasonable insurer.

[19] The appellant argues that the omitted or misrepresented information was not material as RBC would have extended cover in any event, albeit subject to one or more "waivers" or "riders", that is, exclusions. We disagree. [page631]

[20] A coverage exclusion is a critical and integral part of an insurance policy. An exclusion functions as a limitation on the scope of the insuring agreement and the coverage offered.

[21] The evidence here, accepted by the trial judge, established that but for the misrepresentations and non- disclosure at issue, the coverage offered would have been subject to full exclusions for back and hip-related ailments. By virtue of Fernandes' conduct, the exclusions were not issued and the insurer was deprived of the opportunity to narrow the ambit of the risk that it was prepared to assume and to adjust the premium charged accordingly. We therefore agree with the trial judge that RBC "would have changed the policy offered to the plaintiff in a material and fundamental way, had [it] known the true facts".

3. Costs Award

[22] Fernandes argues, in the alternative, that the trial judge erred in her costs assessment by failing to consider his reasonable expectations, as the eventual "losing" party, concerning the costs of the litigation.

[23] The jurisdiction of this court to interfere with a trial judge's discretionary costs award is limited. Absent an error in principle or unless the award is plainly wrong, appellate intervention is precluded.

[24] In this case, having given the matter careful consideration, we see no principled basis on which to disturb the trial judge's costs award. This case involved numerous pre- trial attendances and a five-day trial in which Fernandes advanced allegations of bad faith against the insurer. As pleaded, he also sought punitive damages in the amount of $1 million. As noted by the trial judge, these claims were never withdrawn.

[25] On the record before us, there is no evidence as to the costs incurred by the appellant with his own trial counsel. Accordingly, no comparison of the appellant's incurred litigation costs with those of the insurer is possible.

[26] In the end, we see no error in principle by the trial judge regarding costs. We note that she did consider the appellant's reasonable expectations concerning the cost of the litigation. And we simply are unable to say that the costs award, which was lower than the full partial indemnity costs sought by the insurer, is plainly wrong.

4. Disposition

[27] For the reasons given, the appeal is dismissed. The respondent is entitled to its costs of the appeal, if sought. In all [page632] the circumstances of this case, we fix those costs in the total amount of $10,000, inclusive of disbursements and GST.

Appeal dismissed.