Insurance Act
There is no general statutory relief from forfeiture under the relevant Insurance Act for policies of “disability” insurance.
With respect to “accident and sickness” policies, statutory conditions are subject to a remedy in the case of “imperfect compliance”. This applies only to individual and not group policies.
For reasons to be discussed, it is still possible to seek such relief under the Courts of Justice Act.
Judicature Act Jurisdiction
The fundamental question is whether the overriding statute, known typically as the Judicature Act, or the Courts of Justice Act, allow a remedy where the relevant Insurance Act does not, and if so, what is the test to met?
Prior to this decision, the Queen’s Bench of Alberta efn_note] Baillie v Crown Life, a decision of Mr. Justice C. Phillip Clarke in March of 1998 [/efn_note] considered the issue of whether the plaintiff had satisfied the claims requirements of the group policy offered to her as an employment term with the insurer itself.
The plaintiff was provided a “Blue Book” which described her entitlement to disability benefits, which was the only document she had received of this nature dealing with benefits. It did not speak to any time period to submit a claim.
The plaintiff had resigned her employment due to health problems. One year later she received a diagnosis of Chronic Fatigue Syndrome. She then requested the documents to complete a disability application to which no response was received. She later wrote to the company outlining the basis of her claim. The employer insurer requested certain information without raising notice requirements. The claim was denied while the plaintiff was preparing her reply materials.
The defendant argued that as of the date of termination of employment, she was not eligible to claim under the LTD policy, and that she did not show she was totally disabled on May 1990, and that she had not notified the employer insurer of her claim within the 6 month notice period as set out in the policy.
As to the argument of relief from forfeiture, the court considered the argument of the defence, the plea of which was that long term “disability” policies were governed by the life insurance section of the Insurance Act, from which was absent a relief from forfeiture provision, unlike other parts of the Act which offered such relief dealing with other forms of insurance. 1
The court examined differing decisions and concluded that the court maintained jurisdiction to consider relief from forfeiture under s. 10 of the Judicature Act.
A 2018 Ontario case also determined that such relief is available to an ASO policy. 2
Test for Relief from Forfeiture
The court applied the traditional threefold test. 3 The court acknowledged that the plaintiff bore and met this onus.
The test for the granting of such equitable relief was determined to be, firstly, was the conduct of the plaintiff reasonable in the circumstances. The court also looked to the Blue Book which did not state whether it had contractual effect or not, and which said nothing about time limits, as being persuasive on this issue.
Secondly, was the question posed the object of the right of forfeiture essentially to secure the payment of money? This was not in dispute.
Thirdly, was there a substantial disparity between the value of the property forfeited and the damage caused by the breach? To this issue, the defence argued the lack of a timely medical review. This was considered and rejected as the insurer at no time made such a request.
The court accepted that the evidence on the merits proved total disability and the claim succeeded.
Relief form Forfeiture Denied
The Supreme Court of Canada also dealt with the issue of estoppel and waiver and the issue of the remedy of relief from forfeiture in its June 1994 decision. 4
In that decision, the court declined to allow the remedy in relief from forfeiture but did express its tentative view as to the application of the Judicature Act where the Insurance Act provided no remedy.
The question reviewed by the Supreme Court of Canada included: presuming no waiver, is this a case for relief from forfeiture under the Judicature Act?
As to the claim for relief from forfeiture, the initial hurdle presented was whether the equitable relief contemplated in the Judicature Act was trumped by the scheme of the Insurance Act, which did not allow for such relief for life policies.
The Supreme Court looked to the test for equitable relief generally as purely discretionary:
The power to grant relief against forfeiture is an equitable remedy and is purely discretionary. The factors to be considered by the Court in the exercise of its discretion are the conduct of the applicant, the gravity of the breaches, and the disparity between the value of the property forfeited and the damage caused by the breach: (citation omitted)
The Court determined that the plaintiffs, 5 who held a life insurance policy on the life of the insured, could not satisfy the first test of reasonable conduct as the plaintiffs were aware that the insured was terminally ill and insurable, yet chose to have their mail sent to a closed office in Lake Louise and collected it intermittently. In addition, the three month delay from April to July was unacceptable.
The Court deferred from deciding the threshold issue. It did, however, offer the view that quite likely the Judicature Act relief was open.
This test was again referenced with approval in a 2001 Ontario Court of Appeal decision. 6
The plaintiff sued to obtain relief from forfeiture for missing insurance payments due on the life insurance policy covering the life of her spouse. Both spouses were owners of the policy which provided for each spouse as the beneficiary in the event of the other’s death.
In 1992 the couple separated. The husband agreed to make the premium payments. A consent order in the matrimonial proceedings did not reference this obligation. The wife left the family home, instructed Canada Post to redirect her mail, yet failed to notify the insurer of her new mailing address.
In the summer and fall of 1992, the insurer sent three letters addressed to both spouses advising that the premium due on July 25, 1992 had been missed. No reply was received and no further payments were made.
In December of 1992, the husband died in a car accident. The plaintiff was first advised of the lapse of the policy in early 1993 when her lawyer sought the proceeds.
The relief from forfeiture provision of s. 129 of the Ontario Insurance Act does not apply to life insurance, accident and sickness insurance and marine insurance by s. 122.
The plaintiff sued under s. 98 of the Courts of Justice Act. 7 At trial before Mr. Justice Ferrier, the court found s. 129 of the Insurance Act did not preclude the application of s. 98 as above. The Court of Appeal agreed with this conclusion.
Not Applicable to a Lapsed Policy
The appellate court, however, took issue with respect to the application of s. 98 as a basis for the revival of a lapsed insurance policy. The court examined the wording and the purpose of s. 98 and concluded that it was not an appropriate application of this relief in this circumstance as the section was intended to offer relief in the broad context akin to an improper seizure of goods.
The relief envisioned in the Courts of Justice Act hence was inappropriate in this instance as the insurer had not “pocketed” an asset to which it was not entitled.
The Court concluded that there was no basis for the use of this equitable remedy to term life policies after death and accordingly reversed the decision of the trial judge and disallowed the relief from forfeiture.
Late Submission of Claim; Action Out of Time
A decision of the Supreme Court of British Columbia 8 considered the release of a member of the Canadian Forces from duty on February 11, 1988 as “an administrative release”. The plaintiff took a contrary view, asserting he was medically disabled from such date forward and on May 11, 1989 claimed that he had completed a disability application.
The plaintiff did obtain success in amending his discharge to that of a medical release in June of 1991. As a consequence of his event, the court found that the disability application was sent and received by Maritime Life in November of 1991, which then denied the claim as out of time.
The policy required a proof of claim be submitted within 120 days of the benefit date. The policy required, as did the statute, the action be commenced within 12 months after the proof of claim had been provided or within six years from the first payment event, whichever period expires first.
As the action was commenced on December 13, 1995, more than 6 years after the plaintiff was released from the Canadian Forces and more than four years after the application for benefits was made, it was hopelessly out of time. The action was dismissed.
Delays Not Explained & Beyond Insurer’s Conduct
Accordingly, the passage on the relief from the forfeiture submission was obiter. The court noted that the plaintiff was released in February of 1988 and there was no explanation for the delay to May of 1989 when the first application was made. The second delay from May 1989 to November 1991 was partly explained by advice from the plaintiff’s first lawyer, which had no bearing on the insurer’s position. In addition, the court found that the insurer was prejudiced due to its inability to carry out a timely investigation into the plaintiff’s condition, including an intervening car accident in January of 1989 and would not have granted the relief.
Insurance Act Interpretation on Relief from Forfeiture
A similar issue arose in a decision of the Manitoba Queen’s Bench in December of 2002. 9
The defendant had admitted that the plaintiff was totally disabled from April 29, 1994 to April 29, 1996 and from August 1, 1996 to November 13, 1996. It denied entitlement beyond that date and also asserted a limitation defence due to a term in the policy which allegedly required the action to be commenced within 12 months of the application for benefits. The second argument was that S. 180 and s. 184 required the action to be commenced with 12 months following submission of the proof of claim or within six years after funds are payable, whichever period expires first.
The insurer gave notice that the claim would terminate April 29, 1996 by letter dated April 18, 1996. Following this communication, in July of 1996, counsel for the plaintiff advised that surgery would be required and requested reinstatement of benefits. A further medical report was provided and benefits were paid from August 1 to November 13, 1996. An additional medical report followed in early February 1997 as a result of which the insurer denied benefits by its letter dated March 6, 1997.
Nothing further followed until the plaintiff’s disability claim statement which was provided on October 20, 1998. Further medical reports were included. The insurer advised that based on the medical information received, “we are maintaining our decision to terminate your claim” by letter dated March 13, 1999.
The statement of claim was issued April 17, 2001.
The Court accepted that the limitation imposed was 12 months. It, however, concluded that a new cause of action commenced at the end of each monthly payment period. The court also stated that there was no real prejudice to the insurer when the insurer is called on to pay legitimate claims “perhaps years after an initial disability if the current disability can be proven to be a consequence of the prior event and a renewal or reoccurrence of disability arising from that event”.
The court also concluded that in the absence of a definition of the term “application for claim” in the policy, the statement of claim sufficed. The claim was allowed to stand for benefits up to 12 months prior to the issuance of the claim.
Failure to Follow Independent Advice – Insurance Act - Relief
The same issue arose in the 2003 decision of the Supreme Court of Nova Scotia. 11
The Insurance Act in British Columbia then required that a claim be issued within one year after furnishing proof of claim. Section 10 allowed for relief from forfeiture. The policy allowed for a two year limitation period.
The plaintiff, suffering from what was believed to be laryngitis, took a sick leave for eight weeks. She applied for long term benefits due to what was then diagnosed as muscular tension dysphonia. She was advised that benefits for own occupation were approved effective August 2005 and might be paid until April 2007 at which time the any occupation test would apply.
On October 16, 2006 she gave birth which allowed her to receive EI benefits and disallowed disability benefits. She received EI maternity benefits until August 26, 2007.
On January 11, 2007, the insurer advised the plaintiff that her claim would be closed on April 19, 2007. In the fall of 2007, the plaintiff received a new diagnosis of Conversion Disorder and advised the insurer of this in three letters.
On June 6, 2008, the insurer rejected the claim for benefits based on the new diagnosis. The claim was then issued on July 31, 2008.
The insurer argued the claim must have been issued by July 14, 2006 as the proof of claim was submitted on July 14, 2005.
The court determined that this argument made no sense as it would require the insured to sue even when disability benefits were being paid without visible objection. It was determined that if the Insurance Act applied, the limitation period would not commence until an unequivocal denial of benefits was received.
The issue was then presented as when the plaintiff had received such a denial of benefits. Given the letter dated January 11, 2007 stated that her file would be closed on April 19, 2007, this started the time clock. The policy provided for a two year limitation period. A policy cannot abbreviate the limitation period as set out in the statute, but it can extend it.
The claim was accordingly in time; however, the proof of claim was not filed within the two years which followed from the denial of benefits and even as of the date of trial, which was a further two years. To this issue, the court applied relief from forfeiture as there was no prejudice to the defendant.
Inordinate Delay – Prejudicial to Insurer
Many policies contain a provision which requires a time period such as 60 days to pass following the submission of a proof of claim prior to the commencement of proceedings. Such was the case in a decision of Hoilett, J. of the Ontario Superior Court in July of 2007. 12
The plaintiff had been injured in an accident on December 12, 1996. The policy was terminated by the policy definition on January 12, 2000 when her employment was terminated the same day. The employer also terminated the policy on March 1, 2000.
The policy required that notice of claim be submitted within 30 days following the commencement of disability and proof of disability be given no later than 90 days after the end of the elimination period. A law suit was required to be commenced, by the policy, not until 60 days following the submission of the proof of claim nor more than 3 years following this event.
In 2004, roughly eight years following the accident, she submitted a claimant’s proof of disability. The insurer denied the claim as proof of claim had not been received on a timely basis. On June 16, 2004, an action was commenced.
The trial judge noted that the Insurance Act in section 328 provided for relief from forfeiture in these terms, which again contained the same wording as referenced above.
On these facts, the court, on a summary judgment motion, determined that due to the inordinate delay, the prejudice suffered by the insurer was real as almost a decade had passed within which it was unable to conduct a reasonable medical investigation and to obtain timely expert opinions.
The case did not deal with the issue that s. 328 of the Insurance Act gave authority to grant relief from solely a statutory condition, not a policy term, and further that the statutory conditions of S. 300 are not applicable to group policies.
Relief Allowed – Failure of Employer – Agent of Insurer – No Prejudice
Relief from forfeiture was granted in a 2002 decision of the Alberta Queen’s Bench case. 13 The plaintiff had failed to submit evidence of disability within the time period set by the policy terms. It was determined that this was due to the failure of the employer, determined to be the agent of the insurer for this purpose. Further the delay was of no prejudice to the defence. The issue of the employer as agent for the insurer is reviewed here.
Twenty Months Late in Filing LTD Claim
The Court of Appeal considered this issue in its November 2000 decision. 14
The plaintiff was the estate of the deceased insured, who suffered from cancer which required surgery, this being found to be the commencement date of his disability. He delayed filing the LTD notice of claim until twenty months later. He died one month later.
The policy required timely notice for which relief from forfeiture was granted. The Court of Appeal took no issue with the trial judge’s granting of such relief:
The trial judge further held that the circumstances justified relieving against forfeiture of benefits on account of the late notice of claim and proof of loss. She applied s. 10 of the Insurance Act which authorizes relief against forfeiture for “imperfect compliance” with the policy requirement for proof of loss (as distinct from noncompliance with a limitation period) and she considered the leading case of Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778 which interpreted a similar provision.
[11] The trial judge granted relief for reasons expressed at paras. [18] and [19] of her judgment:
The evidence indicated some confusion with regard to when notice should be given, and genuine confusion in interpreting the policy, which confusion has no doubt led to this action.
I find that the failure to provide notice and proof of claim in a timely matter is “imperfect compliance” in this instance, and relief against forfeiture is appropriate and just under the circumstances of this case.
In addition, it was noted by the trial judge that the insurer suffered no prejudice as a consequence of this relief being granted.