The distinction between “disability” insurance and “accident and sickness” insurance is again relevant with respect to the incontestability provisions which have been enacted by statute. “Disability” insurance does not have the same statutory protections given to the insured.

For accident and sickness policies, the legislation of each jurisdiction allows for a two year window in which the insurer has the right to assert that the contract is voidable based on a failure to disclose or a misrepresentation of fact, absent fraud.

Most group policies do not use an underwriting approval process but rather incorporate into the policy an exclusion which denies coverage to any insured whose disability is one which is related to a disease which existed pre-policy.

The wording of the statute describes a “pre-existing disease or physical conditions” which will incorporate the case law which follows. ¹

The Ontario Court of Appeal, in its 2001 decision, ²considered the running of the time clock of this two year period where the insured has applied for reinstatement of the policy following its lapse for non-payment of premiums. To this issue, the Court determined that the reinstatement of the policy did not re-set the two year period for the original insurance application. It did, however, start the clock for any misrepresentations effected in the reinstatement application.

The distinctions these two types of disability policies, on these issues, are hence as follows:

1. Accident & Sickness has a two-year window to defend, based on a pre-existing condition established by policy, group or individual.
2. Accident & Sickness has a similar two-year window for a defence based on a material misrepresentation, group or individual.
3. Disability has no time limit for defences based on a failure to disclose or misrepresent a material fact.
4. In each instance, fraud is a separate defence without a time limitation.

The first issue arising in this context involves the interpretation of the exclusionary term and hence a determination as to whether it clearly sets out the nature of the restriction or is ambiguous. Always relevant to this issue is the general theme that exclusionary provisions must be read narrowly.

The second question is whether the illness has become manifest in the relevant time period. With respect to the modern statutory condition for “accident and sickness”, there are two relevant time periods. The insurer must establish that the pre-existing condition was manifest pre-policy and also within the two-year window following.

The statutory condition for “accident and sickness” applies to both individual and group policies.

The case law deals primarily with the question of whether the disability existed pre-policy.

Generally the law has held that the pre-existing condition must not only be proven to have existed, it must have also been “manifest”. This conclusion has been supported by the general theme to read the exclusionary provision narrowly. The issue becomes whether it is enough that the symptoms are present pre-policy or whether there must also be an affirmative diagnosis before the issuance of the coverage.

Such was the issue considered in a case ³ in which the plaintiff was diagnosed with thyroiditis. The physical symptoms were soft lumps on her neck three years prior to her application for disability insurance. Three months prior to her application, there was a re-occurrence of a lump on her neck which again was diagnosed as thyroiditis. A biopsy was done within a month of the insurance application. A cancer diagnosis followed.

The policy defined sickness which was one which was “contracted and the cause of which originates after the Effective Date”. A schedule attached to the policy stated:

Please note that this insurance does not cover disability due to … sickness where medical treatment, advice or consultation occur before the Effective Date.

The plaintiff moved successfully for summary judgment. The court concluded that the issue was whether the plaintiff had cancer before the application. The medical evidence was that cancer was not suspected, diagnosed or treated before the biopsy. There was no evidence that the plaintiff suffered from a malignant carcinoma before the application. The disability must be manifest pre-policy.

The interpretative momentum has been clearly influenced by the general theme to read the exclusionary provision narrowly and also to read any ambiguity against the interests of the insurer.

The above context again arose ⁴ in a case in which the insured had been diagnosed with cold symptoms and treated for mild bronchitis during the qualifying period. Two days after the policy coverage began, he was diagnosed with lung cancer, from which he died within two months. Neither the insured nor his physician had suspected lung cancer in this period.

In this case certain symptoms were apparent, but a cancer diagnosis was not made pre-policy. The trial judge again found that exclusionary terms should read narrowly. The insurer had argued that a “pre-existing illness” should include pre-existing symptoms of subsequently diagnosed serious conditions.

The judge, however, also saw the clause as ambiguous as it could apply to a pre-existing illness which was known to the insured or which was not known to the insured. Given that such a clause should be interpreted narrowly, the plaintiff succeeded.

Such was also the case in the 2004 decision of the Alberta Queen’s Bench. ⁵where the issue was whether such an exclusionary term would apply where symptoms of the ultimate disability were noted in the three month exclusionary period, yet the diagnosis and treatment plan were treated after this time period had expired.

The plaintiff had been diagnosed and treated for a variety of symptoms in the qualifying period. The diagnosis of Cushing’s syndrome was not provided until well after the commencement of coverage. The underlying cause of that syndrome was determined to be a benign pituitary gland tumor. Following the surgery, he showed a gradual recovery from many of the symptoms noted in the qualifying period, yet still suffered from irreversible high blood pressure and glucose intolerance/diabetes.

The medical evidence showed that the classic symptoms of the disease were mirrored by those reported in the waiting period. The claim was denied as being caught by the exclusionary provision.

The case followed the pattern as above in which the symptoms were present pre-policy but the diagnosis post-policy ⁶ yet the opposite conclusion followed.

A similar fact situation arose in the 2007 decision of the Alberta Queen’s Bench.⁷

In response to one question asked on the application enquiring as to any disorder or disability to his limbs or joints, the plaintiff responded negatively and did not mention a snowmobile accident causing a bruised chest in March of 1997.

The plaintiff acknowledged that he carried his right arm on a slight angle at the time of the application, but considered this to be of no consequence.

In October of 2001, the plaintiff reported to his physician the symptom of a flashing light in his right eye. A brain scan was ordered. A referral to a neurologist followed who diagnosed Parkinson’s disease on January 28, 2002.

The defence relied upon an exclusionary term which denied coverage where there were any pre-policy symptoms associated with the disability. There was no issue that the diagnosis was not made until after the policy was issued.

The trial judge found that the defence medical witness had shown that the pre-policy symptoms were “fairly consistent” with the disease and that the defence had met its onus to show the plaintiff had pre-policy symptoms, but neither the plaintiff nor his physicians “associated” these symptoms with the disease. This case then involved an analysis of the symptoms to determine the degree of apparent connection of these symptoms to the disease, which was lacking. There was certainly no diagnosis pre-policy, nor were the symptoms conclusive of the ailment.

Notwithstanding these words, the court found that the exclusionary provision was ambiguous and hence must be read against the insurer for both of these reasons. It was required, the court reasoned, that the insured and or his physicians had to associate these symptoms with the disease.

The plaintiff was successful. The defence appeal was dismissed.

A more strict view of such a term was made in the 1995 decision of the Saskatchewan Queen’s Bench. ⁸The plaintiff has diagnosed with osteoarthritis in the qualifying period, but this information had not yet been communicated to the plaintiff. The decision was not telling in the actual reasons for judgment as it was evident a pre-policy diagnosis had been made, but more significantly for the idea advanced that symptoms of such a condition would suffice, even absent a diagnosis.

The definition of eligibility for benefits covered “sickness contracted and which first becomes manifest after the Effective Date of Insurance”. The court concluded that it was evident that the plaintiff suffered from the disease before the effective date and dismissed the claim.

The court did state that sickness becomes manifest when its symptoms are displayed. The lack of a diagnosis would have been of no consequence, a statement made as obiter, as in this case there was such a diagnosis. The fact that this information was not communicated to the insured was of no consequence.

The issue then becomes narrowed to the definition of “manifest”. Are the symptoms sufficient or must there be an affirmative diagnosis pre-policy?

The authority for the proposition that the sickness is manifest when the symptoms are presented was the American decision from Kansas. ⁹In that case, the plaintiff had not sought medical treatment prior to the effective date of insurance, but the court determined that a medical diagnosis was not required. In interpreting the words “manifested itself”, it was enough to show symptoms that would lead a physician to diagnose the illness existed and it was not required to show the insured was aware of the existence of the disease. One would expect for such a defence to succeed in the absence of a diagnosis, that the clinical observations must point directly to the later disease without question.

There followed an evident example of a successful defence on this issue, albeit with a pre-policy diagnosis. ¹⁰ The plaintiff had purchased insurance on August 9, 1997. Due to an injury while water-skiing in early August, he sought medical attention and was advised that he had likely pulled a muscle. On August 8, he was given a chest x-ray by his family doctor, which disclosed a pneumothorax, a collapsed right lung. He was referred to Royal University Hospital where he suffered a second pneumothorax which was successfully treated and he was discharged.

On February 6, 1988, he suffered chest pains and was diagnosed as having a spontaneous pneumothorax, requiring surgery to remove a bleb, a bubble like structure. He underwent surgery on February 24 and was discharged February 28.

The policy excluded from coverage the following:

A pre-existing condition is any condition which a licensed physician was consulted or for which treatment or medication was received prior to the effective date of this insurance.

The Court of Appeal reversed the trial judge and found that the condition met the test of the exclusionary term. In substance, the Court of Appeal found that this was a pre-existing underlying condition which was evident in the pneumothorax as diagnosed in the qualifying period and subsequently.

The synthesis to date is that certainly an affirmative diagnosis pre-policy will show a successful defence whether communicated to the insured or not.  Failing this, symptoms must be manifest such that a physician would have made the diagnosis, and none other, pre-policy. This is all subject to an unambiguous policy definition of the exclusionary term.