Life Insurance Policy Voided After Applicant Fails to Disclose Terrorism Activity

January 31, 2020, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

Mohammad v. The Manufacturers Life Insurance Company 2020, ONCA 57

Date of Decision: January 29, 2020
Heard Before: Janet Simmons J.A., P. Lauwers J.A., I.V.B. Nordheimer J.A.

DISCLOSURE OF TERRORIST ACTIVITY: insured fails to disclose previous terrorism activity; an applicant for insurance has an obligation to reveal to the insurer any information that is material to the application; past actions of the deceased were material to the risk that he posed for the purpose of having his life insured

On Appeal from the Judgement of Justice O’Brien Superior Court of Justice May 31, 2019 ONCA 3386

The Manufacturers appealed the summary judgment granted to Fadia Mohammad awarding her the payment of a death benefit for her husband pursuant to a life insurance policy.

In April 1987 the insured completed an application for life insurance in order to obtain a mortgage. He provided a SIN number and indicated he had just moved to Canada from Spain.

He failed to disclose his previous conviction in Greece of many offences including manslaughter. At the time of conviction Mr. Mohammad was a member of the Popular Front for the Liberation of Palestine a known terrorist group. His sentence was cut short when he was released in the course of hostage negotiations. He moved to Lebanon and eventually to Canada. When he came to Canada he used an alias and fraudulently obtained his SIN number.

In 2013 Canadian authorities deported him to Lebanon where he died of lung cancer in 2015.

When applying for the life insurance policy he failed to disclose all of this information. His policy was for $75,000 and his wife was his sole beneficiary. The application for the policy did not contain any questions concerning the deceased’s status as a citizen or permanent resident of Canada, nor did it contain any questions asking whether he had been convicted of any crimes. The application did, however, contain the following warning:

The Owner and insured agree that the meaning and importance of the questions in the Application have been explained and each question is fully understood. They declare that the statements recorded in the Application are true and complete to the best of their knowledge and belief, and form the basis of any policy which is issued. They understand that the Company requires complete and accurate answers in order to provide insurance and that THE COMPANY MAY CANCEL THE POLICY OR ANY RIDER OR DENY A CLAIM IF ANY ANSWERS ARE INCORRECT.

The motion judge granted summary judgment in favour of the respondent awarding her payment under the policy. She found that, in providing his social insurance number, the deceased did not misrepresent his immigration status. She noted that the application form did not contain any questions that asked anything about the deceased’s immigration status or citizenship. She also concluded that the deceased had not failed to disclose all material facts in his application. In so concluding, the motion judge found that the appellant’s failure to ask any questions relating to immigration status or criminal history “signaled that these issues were not material.”

In the view of the appeal court, the motion judge made a palpable and overriding error in finding that Mr. Mohammad’s failure to reveal his past activities did not constitute a failure to reveal material facts that vitiated the policy. Specifically  s. 183(1) of the Insurance Act, R.S.O. 1990, c. I.8, which reads:

An applicant for insurance and a person whose life is to be insured shall each disclose to the insurer in the application, on a medical examination, if any, and in any written statements or answers furnished as evidence of insurability, every fact within the person’s knowledge that is material to the insurance and is not so disclosed by the other.

The past actions of the deceased were material to the risk that he posed for the purpose of having his life insured. On this point, the motion judge’s reliance on the decision in Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388, 249 O.A.C. 234, leave to appeal refused, [2009] S.C.C.A. No. 303, is misplaced. The materiality of the unrevealed information in Sagl, a fire insurance case, is of an entirely different kind than is the case here. There the insurer made no inquiries about information related to the ownership of the property, which it knew or should have known existed, such that the trial judge was entitled to infer that this information was not material. Here there is no suggestion that the appellant ought to have known that the information related to the deceased’s past existed, and therefore cannot be faulted for not having inquired into it.

The motion judge also erred in relying on the absence of questions in the application form as disposing of the deceased’s obligation to reveal material facts. It is a principle of long standing that an applicant for insurance has an obligation to reveal to the insurer any information that is material to the application: Carter v. Boehm (1766), 3 Burr. 1905 (Eng. K.B.). This principle was stated by Morden A.C.J.O. in Vrbancic v. London Life Insurance Co. (1995), 25 O.R. (3d) 710 (C.A.), at p. 727:

The trial judge also appears to have held that simply giving full answers to the questions of the insurer's agent amounted to full disclosure. This is not necessarily so. “As a general rule the fact that particular questions relating to the risk are put to the proposer does not per se relieve him of his independent obligation to disclose all material facts”.

The deceased knew that his past activities were relevant to his application for life insurance. Indeed, shortly after he applied for the life insurance, the deceased filed an affidavit in his immigration proceedings in which he said that his life would be in danger if he were to be deported to Israel. He was aware that his past activities, coupled with his illegal entry into Canada, put him at serious risk of physical harm. It is clear to us that the deceased intentionally hid his past activities from the appellant, just as he hid them from the Government of Canada when he sought entry to this country.

Having concluded that there was a failure to reveal a material fact by the deceased, the issue is then whether that withholding was fraudulent. Section 184(2) of the Insurance Act provides that:

[W]here a contract, or an addition, increase or change referred to in subsection 183 (3) 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 183 does not, in the absence of fraud, render the contract voidable.

The Court of Appeal concluded that the deceased intentionally withheld this information is sufficient to establish fraud.

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