September 26, 2019 by Greg Meckbach
If an Ontario auto insurer discovers a client made a material misrepresentation or non-disclosure in its application, could the insurer treat the policy as invalid to begin with?
Not now. Or at least, not if the fact situation is the same as in ING Insurance Company of Canada, also known as, or formerly, ING Halifax Insurance Company v. Karla Garay Merino, et al.. The Supreme Court of Canada announced Thursday it will not hear an appeal from ING Insurance Company of Canada (renamed Intact of 2009) on this issue.
It all started in 2002 when Timothy Klue and his wife, Sonia Abou-Khalil, applied for coverage with ING for their 1994 Jeep Grand Cherokee.
At his broker’s office on May 29, Klue signed a form indicating neither he nor his wife had had any accidents or insurance claims, no history of convictions for motor vehicle related offences in the last three years, and had not had their licences suspended within the previous six years. His wife did not sign the form.
A binder valid until June 29, 2002 was issued the same day.
Two days later, ING received the application from the broker. Soon afterward, ING’s underwriting department discovered Abou-Khalil had an at-fault accident the previous September, had been convicted of speeding twice and careless driving once, and had her driver’s licence suspended for non-payment of fines.
Reasoning that the risk was outside its underwriting guidelines for new business, ING sent Klue and Abou-Khalil a registered letter July 2, telling the couple their policy is void from its inception date.
Three months later, a pedestrian was catastrophically injured after being hit by the jeep for which Klue applied for insurance. The vehicle was driven by Klue. The pedestrian, Karla Merino, sued the couple. Merino was awarded $2 million in 2011, an award upheld on appeal in 2013.
The vehicle was considered uninsured so the plaintiff could not recover the full amount of the judgement directly from the defendants. So the plaintiff went back to court looking for compensation from ING. Initially, she was not successful.
At trial, Ontario Superior Court of Justice Gregory Verbeem ruled in favour of the insurer, finding that the vehicle was in fact uninsured. In his decision, released in October 2017, Justice Verbeem reasoned that Klue and Abou-Khalil knew that the Jeep was uninsured before the event, giving rise to the claims against them. They appreciated that the vehicle needed to be insured to operate it on a highway and they had over two months before the accident to obtain alternative insurance, the trial judge noted.
“The Jeep’s uninsured status at the time of the accident did not arise from an attempt by the insurer to rescind the contract after the accident,”wrote Justice Verbeem. “Instead, its uninsured status arose as a result of a volitional choice by Klue and Abou-Khalil not to insure the vehicle after they became aware that it was not insured by ING.”
That ruling was overturned in a Court of Appeal for Ontario ruling released April 25, 2019.
Intact applied June 21 for leave to appeal to the Supreme Court of Canada, which announced Sept 26 it will not hear an appeal. The Supreme Court of Canada does not release reasons for dismissing leave applications.
This past April, the Court of Appeal for Ontario found that Justice Verbeem made an error in law when he found that an auto insurer is allowed to rescind an automobile policy, at common law, based on misrepresentation in the application.
The province has a regulation that sets out the statutory conditions for auto insurance. It specifies that if an insurer wants to terminate a policy for reasons other than non-payment of premium, the company must give the client 15 days notice by registered mail or five days notice by personal delivery.
If the notice of termination does not comply with that section, then the insurance contract remains in force, Justice Kathryn Feldman of the Court of Appeal for Ontario wrote. In ING, the insurer did not give Klue and Abou-Khalil 15 days’ notice in its registered letter.
In a case like that, the insurer should not be able to rescind the contract at common law and make it void ab initio or invalid to begin with, wrote Justice Feldman.
The purpose of Ontario’s auto insurance laws are to protect innocent victims of automobile accidents, and to provide some statutory accident benefits to everyone who is involved in an accident, added Feldman.
“If an insurer were permitted to rescind an insurance contract at common law ab initio, a person who believed they were operating a vehicle with insurance could have that contract rescinded with retroactive effect, putting the person in automatic contravention of the Compulsory Automobile Insurance Act, a result which is clearly inconsistent with the intent of the legislature.”
This is blatantly a case of the responsibility of the dishonest party being thrust upon the insuring public. How are the honest people to be protected from such dishonesty.
This surely eliminates signatures on an Ontario Auto Insurance Application effective immediately today September 27th, 2019! The initial reason for signatures on an auto application was exactly to VOID a policy ab initio (As it never existed) for misrepresentation of material facts. The basis of insurance was founded on Utmost Good Faith which obviously is no longer the case today. Thus, the reason for us to rely on technology’s BIG data and AI to now do the underwriting for us. There is no longer any need to ask consumers if they have any accidents, tickets, cancellations for non-payments and such as technology does that for us today. This case is a perfect example of gross negligence of misrepresentation but ultimately is no longer a valid pillar for the industry to void an auto policy. The new procedure of cancelling by Registered Letter is fair enough but caused our friends at Intact to pay $2m plus litigation costs to find this out on behalf of the industry.
This is mind-boggling! What is the purpose of a signed insurance application…?Terrible precedent to set forth. It’s been a tough year for the industry, I’m curious to see which company decides to exit the market next.
Hi I have a similar situation. A friend of mine got insurance on a vehicle. She has been paying insurance on the car since a year now. They were in not at fault accident. First td said they had to investigate the accident. Took three months. And then said they will pay and car was total loss. When ownership was sent in it had the sisters name not hers.
So the ownership has one sister name the insurance under one sister.
So insurance denied claim stating that it’s misrepresentation. But when she got insurance they never ask her for ownership.
They only ask her if she win car. And she said yes because she has this car. So when her sister gave her the car she didn’t know she had to make the change of ownership as the car was finance. But she has been making all the finance payments. And the sad part is she works for td bank and insurance denieng the claim is td to.
Can you tell me if anything could happen at this point.
Intact’s mistake was to void the policy assuming that the person who signed the application knew about the claim, convictions and suspension against one of the applicants. It can be assumed that he knew about his wife’s infractions, but this was not determined before voiding the policy. Intact assumed misrepresentation and it cost them $2mil. Without knowing for certain that there was misrepresentation, Intact should have cancelled by registered letter. Intact lost this battle because an underwriter couldn’t properly justify cancelling for misrepresentation.
Utmost Good faith? There is a blast from the past. Norman, I thought I was the only one to remember that these days!
I’m shocked the Supreme court won’t hear the appeal. How is it in the public interest to toss aside the willful negligence of operating a vehicle without insurance, fraud and misrepresentation for failing to disclose and months later find a coverage loophole to shockingly bring a voided policy back to life? I could see the argument if the accident happened within the notice period but not months after. Months later, the voided application is no longer linked to the loss as there is no argument that they weren’t fully aware that the policy had been voided. The linked factors are choices made by the appellant. Choices that lead them to seek no valid insurance, to continue to drive without insurance and to carelessly put the public at risk.
Years ago I wrote a life policy for a terminally ill woman who failed to disclose her cancer diagnosis. A few weeks later they voided her application. She would be gone now but her family may want to go talk to the creative lawyer in this case. This is a bad precedent.
My friend got Insurnace. Car was own by sister. When she got Insurnace she was ask if car was register on her name. She said yes ( she thought they meant if she has possesion of the car. ) accidnet happen not her fault insurance denies the claim. Void the policy for misrepresentation
Can you guys help what she should do
Canada’s rules of law first came from Britain. Quoting in part “Contracts” in the EB of 1878, ” Contracts may be vitiated by mistake, misrepresentation, fraud, undue influence, etc. Mistake, to avoid a contract, must be such that there was no real agreement at all, or that the real agreement was erroneously expressed; and money paid under a mistake as to fact may be recovered. The general rule is that relief will be given against mistake as to fact, but not against mistake in law. Contracts induced by fraud, misrepresentation, etc, are in general not void but voidable at the instance of the party injured or imposed upon.”
Section 1, 1.1 – Introduction – OAP 1, declares, “This policy is Part of a Contract”. It’s now obvious by this case law that an agreement based on misrepresentation fills the law of contract, completely dismissing the opportunity for “injured party” to claim breach of contract. Any wording to the contrary in the application for the OAP is therefore inapplicable.
The industry, the regulators and the honest insureds continue to pay for claims that really do border on, or completely are evident of, “Fraudulent” activity. No one making a decision that flies in the face of common sense, Common Law and contract law, should be making those decisions, and yes, why did the Supreme Court not weigh in on this? I am old too… old enough to have the term “Uberrima fides”.in-bedded in my memory.Thank You Insurance Institute friends and teachers of many years ago.
Looks like these two terribly bad but lucky drivers managed to get insurance coverage to the tune of $2 million without paying a dime in premiums…and that’s OK with the Canadian “justice” system.
Basically, everybody may lie and provide incorrect information and
an insurance company is unable to terminate coverage. I believe this is
crazy. In, this case, the Timothy Klue ans his wife Sonia Abou-Khalil
drove their vehicle knowingly uninsured for months even so they were notified by ING, they simply ignored it. Insurance companies will take this
into consideration incident and increase automobile insurance premium .
Ha! Now this needs to be calculated into the premiums. Way to go Justice system.
OK, first thing.. The fact that the Supreme Court refused to hear the appeal is concerning, plus they dont have to give a reason?? What.. they wanted to get home early to watch Thursday night football? Second, what happened to cancel ab initio?? If someone blatantly lies on an application, insurers should have every right to get off risk back to the beginning. Lastly, like a couple of others have said, what about responsibility of the actual (un)insured? They knew they had no insurance but they chose to drive anyway, they have absolutely zero liability here?? This is just wrong on so may levels… And the public doesnt understand why their rates are so high…
Our Canadian justice system needs a major overhaul in order to deal with blatantly dishonest people as well as to save the honest, hardworking and innocent taxpayers like myself.
Simple, but unwelcome solution. No longer provide binding authority to Brokers. Receive an application from the Broker, underwrite the application and provide an approval or rejection. If approved coverage is provided from date of approval, not the date of the application.
So where have underwriters been premising all of their Void Ab decisions. Did they make this rule up? No. I believe the Court of Appeal’s decision is flawed and worse the Supreme Court missed a much needed opportunity to set this right. In 2002, the OAF1 (7411-3E) 1/01 was the application used and in 11 Dec of Applicant referred verbatim to Sec 233 of the Automobile Insurance Act. Now it Does Not here give the Ab Initio option. Rather it states categorically the consequence/limitations of a claim following such Misrepresentation or Nondisclosure. The obiter dictum in Ellis v London Canada Insurance demonstrates the COA’s mindset but in my opinion neglecting the decision in Grant v The Prudential Assurance Co was the real injustice. Here the judge stated that while Misrepresentation does not automatically void the policy the insurer could treat it as such providing it was done as soon as the breach was discovered. The judge in essence said it was voidable at the option of the insurer. The Court of Appeal erred in decision because Intact acted within the reasonable requirements to satisfy the spirit and intent of the law. The arrogance of the Supreme could be likened to the recent oven baked apology of a similarly arrogant political leader.
So why would insurance companies continue to insure automobiles? If the individual does not need to sign the app or disclose their history accurately, then what difference does it make? Essentially, the judge is saying that insurance companies are on the hook for everyone, whether they’re insured or not…Insane…
Insurance is a business not a bloody charity. The culprit in this story is clearly a con-artist. Yet here we have the judicial branch imposing injustice upon the industry once more. Maybe the judge doesn’t know what insurance is, because their reasoning for their decision surely reflects as so.
So perhaps I’m reading this wrong. But did Intact not send a registered letter on July 2 cancelling the policy and regardless of the reasoning the accident occurred 3 months after the fact. So confused. Or was the ruling overturned because of the reason given as misrepresentation. Frightening if that is the case and as someone else pointed out a dangerous precedent.