General Trust of Canada v. Artisans Coopvie, Société coopérative d'assurance‑vie, [1990] 2 S.C.R. 1185

General Trust of Canada and X. Béton (1977) Ltée Appellants

v.

Les Artisans Coopvie, Société coopérative d'assurance‑vie Respondent

indexed as: general trust of canada v. artisans coopvie, société coopérative d'assurance‑vie

File No.: 20431.

1990: February 27; 1990: October 18.

Present: Lamer C.J.* and Wilson, La Forest, L'Heureux‑Dubé, Gonthier, Cory and McLachlin JJ.

on appeal from the court of appeal for quebec

Insurance ‑‑ Life insurance ‑‑ Coming into effect ‑‑ Interpretation of conditions of art. 2516 C.C.L.C.

The principal shareholder of X. Béton signed on the company's behalf an application for life insurance to meet the financing conditions imposed by General Trust. An amended application was accepted by respondent insurer on May 6, 1977 and the policy was delivered that same day. The application indicated that at that time X. Béton paid the insurer a deposit of $1,000. At the same time the insured signed a declaration of good health and insurability. At X. Béton's request, the insurer agreed on June 14 to vary the payment provisions by dividing the annual premium of over $8,000 into monthly premiums, so that the first premium was covered by the earlier payment of $1,000. A few days earlier the insured had gone into hospital. He had been complaining since late April of neuralgia and headaches, but it was not until July 5 that the doctors decided to treat him for lung cancer. After the insured died in November, the insurer refused to pay the proceeds of the insurance. In response to this refusal, appellants brought an action against the insurer in the Superior Court. The court dismissed the action and its judgment was affirmed by the Court of Appeal. Both courts found that the initial premium had been paid on June 14, not May 6, and that on account of the earlier change in the insurability of the risk, the policy never came into effect. This appeal requires the Court to clarify the interpretation of art. 2516 C.C.L.C.

Held: The appeal should be dismissed.

Article 2516 C.C.L.C. provides that life insurance becomes effective when the application is accepted by the insurer, to the extent that (1) it is accepted without modification, (2) the initial premium is paid, and (3) there has been no change in the insurability of the risk from the signing of the application. These three conditions are placed on the same footing and must be fulfilled concurrently for the insurance to become effective. Since the third condition is essentially passive in nature and does not correspond to any point in time, the determination of whether the insurability is still the same must be made at the time the other two conditions coincide. The concurrence of the three conditions may occur at any time after the application is accepted. If the initial premium is not paid until after the application is accepted, art. 2516 C.C.L.C. has the effect of a two‑part suspensive condition which when met causes the insurance contract to come into effect. In this case the life insurance never came into effect. The application was accepted by the insurer without change on May 6, 1977 but the initial premium was not paid until June 14. There could not have been a payment on May 6 of a monthly premium that had not yet been liquidated. It was not until June 14 that the amount of this premium was set. Until that date the premium was thus payable annually and it had not been paid. The changes which occurred in the insurability of the risk before payment of the initial premium thus caused the previously formed contract to lapse by making it impossible for the three conditions to exist concurrently and so for the insurance to come into effect.

The insurer did not waive the application of art. 2516 C.C.L.C. in the policyholder's favour. The insurance contract, and in particular the clause which substantially restates the conditions set out in art. 2516, indicates the parties' intent and categorically excludes any intent to waive.

Cases Cited

Referred to: Blanchette v. C.I.S. Ltd., 1973 CanLII 3 (SCC), [1973] S.C.R. 833; Duplisea v. T. Eaton Life Assurance Co., 1979 CanLII 191 (SCC), [1980] 1 S.C.R. 144; Zurich Life Insurance Co. of Canada v. Davies, 1981 CanLII 68 (SCC), [1981] 2 S.C.R. 670; Neveu v. Services de santé du Québec, Sup. Ct. Montréal, No. 500‑05‑012515‑811, December 11, 1981.

Statutes and Regulations Cited

Civil Code of Lower Canada [am. 1974, c. 70, s. 2], arts. 2476, 2485, 2500, 2516, 2524, 2527.

APPEAL from a judgment of the Quebec Court of Appeal, [1987] R.R.A. 454, 7 Q.A.C. 304, affirming a judgment of the Superior Court, 1984 CanLII 5991 (QC CS), [1984] C.S. 24, 5 C.C.L.I. 229. Appeal dismissed.

Jean Morin, Yves Lacroix and Pierre de Grandpré, Q.C., for the appellants.

Claudette H. Blondeau and André Gagnon, Q.C., for the respondent.

//Gonthier J.//

English version of the judgment of the Court delivered by

GONTHIER J. -- This appeal concerns the interpretation of art. 2516 of the Civil Code of Lower Canada, dealing with the coming into effect of life insurance. The wording of this article gives rise to some confusion and its application has caused certain problems in determining the time until which the insurability of the risk must remain unchanged. The facts of this case require this Court to settle the question.

1. Facts and Proceedings

The facts in this case are not in dispute. They were the subject of a joint statement prepared by the parties at trial and reproduced in the reasons of Kaufman J.A. For reasons of clarity and because of the importance of the time factor in this case, I felt it desirable to summarize the relevant events using a synoptic table arranged in chronological order. These events all occurred in 1977:

March 8 In order to meet the financing conditions imposed by the appellant General Trust of Canada (hereinafter "General Trust"), the late Roland Couillard signed on behalf of the appellant X. Béton (1977) Ltée (hereinafter "X. Béton"), of which he was the principal shareholder, an application for life insurance in the amount of $250,000;

March 9 As required by the application, the insured Couillard underwent a medical examination which showed nothing abnormal and signed the customary declarations regarding his state of health, declarations which were forwarded to the respondent Les Artisans Coopvie, Société coopérative d'assurance‑vie;

April 23 The insured Couillard began complaining of neuralgia and headaches;

April 28 The first insurance application was accepted by the respondent;

May 2 to 6 The insured underwent a series of treatments provided by a chiropractor;

May 4 The first insurance policy was issued in the amount of $250,000;

May 6 The first policy was delivered and a declaration of good health and insurability signed by the insured Couillard;

In order to meet the new requirements of General Trust respecting a new offer of financing for X. Béton, a second application was signed by the insured Couillard and accepted by telephone, which raised the capital insured from $250,000 to $450,000;

The second application mentioned a payment of $1,000 by X. Béton to the insurer;

"Early June" The insured Couillard underwent medical tests and examinations at the Centre Hospitalier de l'Université Laval;

June 9 The insured Couillard entered the Hôpital de l'Enfant‑Jésus (where he remained until July 10);

X. Béton asked the respondent to vary the contract provisions regarding payment of the premium, so that it would be payable monthly rather than annually;

June 14 The respondent agreed to vary the premium payment provisions; the annual premium of $8,730.50 was converted into twelve monthly premiums of $772.65, so that the first premium was covered by the earlier payment of $1,000;

July 5 The physicians in charge decided to treat the patient for lung cancer;

November 12 The insured Couillard died as a result of lung cancer.

The appellants' action for performance of the contract was dismissed by the Superior Court and their appeal was dismissed by the Court of Appeal.

2. Judgments Below

Superior Court, 1984 CanLII 5991 (QC CS), [1984] C.S. 24

In the opinion of Letarte J., under art. 2516 C.C.L.C. reference must be made to the date on which the initial premium was paid in full in determining whether a change in insurability of the risk had occurred since the application was signed.

The judge first established that the initial premium was paid in full on June 14, 1977, when the insurer agreed to convert the annual premium into monthly premiums. The payment of $1,000 dated May 6 could not be treated as payment of the initial premium, since the amount of the agreed premium at that time was in excess of $8,000. From his review of the evidence Letarte J. concluded that the insurability of the risk had changed on June 14. In his view, this change prevented the insurance from coming into effect. He explained that the insurer could not be held liable for the fact that, between May 6 and June 14, 1977, the coming into force of the contract was delayed by non‑payment of the premium.

Additionally, based on his assessment of the evidence, he declined to find there had been a waiver by the insurer regarding the time the insurance came into effect, as there was no formal consent and no sufficiently serious, specific and concurring circumstances to indicate this.

Court of Appeal, [1987] R.R.A. 454

Kaufman J.A., for the majority, shared the view of the trial judge that the initial premium was paid on June 14, 1977 and that on account of the earlier change in the insurability of the risk which Mr. Couillard was aware of, the policy never came into effect. In his opinion, no other interpretation of art. 2516 C.C.L.C. is plausible.

Dubé J.A. shared the view of Kaufman J.A., adding that the appellants had not been able to establish any errors in the findings of fact and law arrived at by the trial judge.

3. Analysis

According to the Court of Appeal and the Superior Court, the insurance which is at issue in this case never came into effect. This is what the appellants disputed in this Court. The article of the Civil Code of Lower Canada the interpretation of which will determine the outcome of this case reads as follows:

2516. Life insurance becomes effective when the application is accepted by the insurer, to the extent that it is accepted without modification, that the initial premium is paid and that there has been no change in the insurability of the risk from the signing of the application.

This article, of relative public order (art. 2500 C.C.L.C.), is at variance with the contractual provisions in use at the time it was adopted, which determined the coming into effect of the insurance and the time until which insurability had to remain the same to be the date the policy was delivered. This system had the disadvantage of leaving it entirely in the discretion of the insurer to determine the crucial time when insurance protection began, the time until which the insurer claimed it could discuss the insurability of the risk. In short, it was a remedial provision favorable to the policyholder which restored a measure of balance between the rights of the parties as to when the insurance coverage began.

Article 2516 C.C.L.C. determines the coming into effect of the insurance to be the time the application is accepted by the insurer, subject to three conditions. The fulfillment of the first, that the application be accepted without modification, is not at issue. The time the second was fulfilled, namely when the initial premium was paid, is however in dispute in the present case. The problem regarding the final condition, as to the unchanged insurability of the risk, involves determining the time to be used in evaluating the risk.

Interpretation of the conditions of art. 2516 C.C.L.C. is at the heart of this appeal and is what I intend to consider first. I will then dispose of the question of waiver raised by the appellants, who argue that in any event the insurer had waived the application of art. 2516 C.C.L.C. in the policyholder's favour in the case at bar.

A. Interpretation of art. 2516 C.C.L.C.

The problem presented in applying the condition regarding payment of the initial premium is peculiar to the case at bar and is quite straightforward. The insurance policy taken out on May 6, 1977 mentions a deposit of $1,000 paid to the respondent by X. Béton that same day. The premium set by this contract is $8,730.50 payable annually. At the request of X. Béton, the respondent agreed on June 14 following to vary the payments by dividing the annual premium into twelve monthly premiums of $772.65. The appellants argue that this change to monthly payments means that the payment of the initial premium within the meaning of art. 2516 C.C.L.C. occurred on May 6 as a consequence of the deposit of $1,000, which under the new payment provisions was used to cover the amount of the initial premium.

I cannot accept the appellants' thesis. In my view, there could not have been a payment on May 6 of a monthly premium that had not yet been liquidated. It was not until June 14 following that the amount of this premium was set and so became subject to payment. Until that date, the premium was payable annually; the initial premium was $8,730.50 and it had not been paid.

The Superior Court and the Court of Appeal thus properly held that the condition in art. 2516 C.C.L.C. regarding payment of the initial premium was not met until June 14, 1977. I turn now to the problem connected with application of the condition regarding unchanged insurability, the solution of which seems less straightforward and which is of more general interest.

First, I would note that the change in the insurability of the risk between the time the application was made and the time the initial premium was paid, namely between May 6 and June 14, 1977, is not in dispute. The appellants admit that certain circumstances known to Mr. Couillard changed his insurability before June 14. The question that arises is whether the insurability of the risk must remain stable only until the application is accepted, or whether it must continue until the time the insurance comes into effect, when the latter is delayed by failure to pay the initial premium.

The appellants argue that unchanged insurability of the risk is, within the meaning of art. 2516 C.C.L.C., a condition of formation of the contract which must be assessed at the time the unaltered application is accepted, the time at which there is a meeting of the minds. They argue that payment of the initial premium is in the nature of a suspensive condition for the coming into effect and could be made by the policyholder at any time regardless of whether the insurability of the risk was unchanged when the payment was made. I cannot agree with this proposition in so far as the question of unchanged insurability is concerned. Such an interpretation of art. 2516 C.C.L.C. would open the door to all kinds of abuse by creating a system of fundamental contractual imbalance between the parties. The insurer would be at the mercy of the policyholder, who could delay payment of the initial premium with impunity and only make it if and when the event insured against was likely to occur. Such a situation is inconceivable in a situation where the insurer has no right of action to obtain payment of the premiums due (art. 2527 C.C.L.C.).

Article 2476 C.C.L.C. states that the insurance contract "is formed upon the insurer's acceptance of the policyholder's application". This is a specific codification of the general civil law rule that the contract is formed when there is a meeting of the minds. It is beyond question that a change in the insurability of the risk occurring before the application is accepted will prevent the contract from being formed, as the risk is part of the very subject‑matter of the agreement and there will be no meeting of the minds if it differs from what was agreed to. This is what I have already said in Neveu v. Services de santé du Québec, Sup. Ct. Montréal, No. 500‑05‑012515‑811, December 11, 1981, at p. 8:

[TRANSLATION] If the risk has changed before the contract is entered into, that is, before its acceptance by the insurer, there is no longer a meeting of the minds since the subject‑matter has changed.

The consent given by the parties can only apply to the subject‑matter which they had in mind; but the question of formation of the contract does not really tell us much about when the insurance comes into effect, as this is and continues to be a separate concept.

It is art. 2516 C.C.L.C. which governs the coming into effect of the insurance. This coming into effect is determined to occur at the time the application is accepted, subject to the three conditions which I mentioned above. I noted that the first is not at issue here, as the application was accepted by the insurer without change on May 6, 1977. The appellants seek to distinguish between the other two, namely payment of the initial premium and unchanged insurability of the risk. They regard payment of the initial premium as a condition of the contract coming into effect and unchanged insurability as a condition of its formation, so that the latter has to be finally determined at the time the contract is formed. In the case at bar this would mean that the changes in Mr. Couillard's state of health which occurred after acceptance of the unaltered application on May 6 and before payment of the initial premium on June 14 did not prevent the insurance from coming into effect when this payment was made. I see no basis in the provision for splitting these two conditions in this way.

First, art. 2516 C.C.L.C. deals only with the coming into effect of the insurance and does not in any way purport to determine when the contract is formed. Second, the three conditions are placed on the same footing and in my view must therefore be fulfilled concurrently for the insurance to become effective. This concurrence of the three conditions may occur at any time after the application is accepted.

In cases where the premium is paid before or at the time the unaltered application is accepted, the insurance will come into effect at the time of acceptance provided "that there has been no change in the insurability of the risk". The three conditions may then exist together at the time the contract is formed, and this will also be the time the insurance comes into effect. However, when the initial premium is paid after the unaltered application has been accepted, which is the case here, the three conditions can only exist together at the time of payment and if they are in fact to coincide at that time it must still be the case "that there has been no change in the insurability of the risk". Unlike the other two, the condition regarding unchanged insurability is essentially passive in nature and does not correspond to any point in time, which makes it to some extent dependent on the other two being met so far as the time of its determination is concerned. Accordingly, the determination of whether the insurability is still the same must be made at the time the other two conditions coincide.

If, as in the case at bar, the initial premium is not paid until after the application is accepted (which implies that the coincidence of the three conditions is not likely to occur until after the contract is formed), art. 2516 C.C.L.C. has the effect of a two‑part suspensive condition which when met causes the previously formed contract to come into effect: this condition will be met by payment of the premium if no change has occurred in the insurability of the risk at the time the payment is made. As is generally the case in civil law, the fulfillment of the suspensive condition operates retroactively and means that the contract is deemed to have taken effect at the time it was formed. Here, the wording expressly provides for such retroactivity in stating that the insurance becomes effective when the application is accepted.

The appellants submit in opposing such a system that the insurer can collect premiums for a period during which he has assumed no risk, a possibility ruled out by this Court in certain cases from the common law provinces: Blanchette v. C.I.S. Ltd., 1973 CanLII 3 (SCC), [1973] S.C.R. 833; Duplisea v. T. Eaton Life Assurance Co., 1979 CanLII 191 (SCC), [1980] 1 S.C.R. 144; Zurich Life Insurance Co. of Canada v. Davies, 1981 CanLII 68 (SCC), [1981] 2 S.C.R. 670. This proposition is incorrect because the coming into effect of the insurance is retroactive: when the suspensive condition is fulfilled, the contract is deemed to have come into effect at the time the application was accepted. This retroactivity explains why the insurer can receive premiums for the period between acceptance of the application and payment of the initial premium. While it is true that in practice the insurer will not have to pay the amount of the insurance if the risk occurs during this period, the fact remains that during this period he assumes the ageing of the insured and remains bound by his earlier undertaking, in particular by the amount of the premium determined in accordance with the circumstances existing at the time the contract was formed, an amount which could have been paid at that time. The situation is comparable to that covered by art. 2524 C.C.L.C., in which the policyholder may require the reinstatement of insurance which has been cancelled for non‑payment of premiums if he pays the overdue premiums, repays advances received on the policy and establishes that the insured still meets the conditions for his being insured under the cancelled contract. There is nothing unusual in this. Further, the policyholder has only himself to blame if the coincidence of the three conditions required for bringing the insurance into effect is delayed by his failure to pay the initial premium.

In the case at bar, subject to the issue of waiver, I am therefore of the view that the changes which occurred in the insurability of the risk before payment of the initial premium caused the previously formed contract to lapse by making it impossible for the three conditions to exist concurrently and so for the insurance to come into effect. I can only agree with the Superior Court and the Court of Appeal in saying that the insurance the amount of which is claimed here never came into effect.

Against this conclusion the appellants argued that under art. 2485 C.C.L.C., the insured has a duty of disclosure only if the insurer requires it of him. This article read as follows at the time:

2485. The policyholder, and the insured if the insurer requires it, must represent all the facts known to him likely to materially influence a reasonable insurer in the setting of the premium and the appraisal of the risk or the decision to cover it. [Emphasis added.]

In the case at bar, the insurer made no inquiry of the insured as to his state of health when the initial premium was paid. The insurer, the appellants argue, therefore cannot now question the insurability of the risk for this period.

The answer to this is that the condition that the insurability remain unchanged stated in art. 2516 C.C.L.C. is objective and independent of the general duty of disclosure otherwise dealt with in art. 2485 C.C.L.C. Certainly a policyholder who delays payment of the initial premium until the insurability of the risk has changed has every reason to inform the insurer of this, as his contract lapses by the objective fact of a change in the insurability of the risk; but this in no way means that the insured has a further duty to disclose or the insurer to make inquiry. I therefore see no merit in this objection.

Accordingly, I am of the view that art. 2516 C.C.L.C. inevitably leads to the conclusion that the insurance contract never became effective. However, as this provision is only of relative public order (art. 2500 C.C.L.C.), the insurer was free to waive its application in favour of the policyholder or the beneficiary. The appellants argued that the respondent had in fact made such a waiver in the case at bar.

B. Waiver

The appellants argue that here the insurer waived the application of art. 2516 C.C.L.C. in the policyholder's favour by its actions and by the effect of the stipulations in the contract. In their submission the fact that the insurer accepted the $1,000 payment and allocated it to payment of a premium which it regarded as payable as of May 6, together with the fact of the delivery, without any reservation of the policy when the insurer knew that it was to be assigned as security, should amount to a waiver by the insurer of its right to require that the insurability remain unchanged beyond May 6, 1977. Besides, they say, the policy is dated May 6 and this should correspond to the time from which the risk is insured. Here again, I cannot subscribe to this proposition.

I would first point out that the date of May 6 is described in the contract as a [TRANSLATION] "reference date". It is the reference date of a contract for a specific period of five years: it means that the contract will end on May 6, 1982. Further, it corresponds here to the time when the application was accepted and accordingly indicates when the insurance came into effect, as determined by art. 2516 C.C.L.C.; but this date does not by itself determine when the contract came into effect; it is also necessary to read the relevant passage of the insurance application contained in the policy, which is as follows:

[TRANSLATION] . . . the policy shall not come into force until it has been delivered and the initial premium paid in full within the applicant's lifetime and, except in the case of a life annuity, provided that the applicant's health is still the same as described in the application.

As the appellants point out, this clause is without effect in so far as it is less favorable to the policyholder than art. 2516 C.C.L.C. No one disputes, for example, that the reference to delivery of the policy cannot have any effect here. As to the remainder, however, the wording seems essentially to impose the same conditions as art. 2516 C.C.L.C., and while the language is somewhat different, it should be given a construction consistent with the provisions of that article.

Be that as it may, it is not necessary to determine here precisely the actual scope of the clause. This clause of the contract indicates the parties' intent, even if in certain respects it may be deprived of its binding force: that intent is of course conclusive on the question of waiver. The content of the clause categorically excludes any intent to waive.

4. Disposition

For these reasons I would dismiss the appeal and affirm the decision of the Court of Appeal, with costs.

Appeal dismissed with costs.

Solicitors for the appellants: Grondin, Poudrier, Bernier, Québec; de Grandpré, Godin, Montréal.

Solicitors for the respondent: Leduc, LeBel, Montréal; André Gagnon, Québec.

*Chief Justice at the time of judgment.