An insurer denied coverage under a policy of life insurance after it had accepted payment of back premiums and reinstated coverage following the insured's death. The court held the insurer had waived its right to require renewed evidence of insurability prior to reinstating coverage and could not later seek to deny coverage. The court also held the insurer was estopped from denying coverage because it represented coverage would be reinstated upon payment of back premiums, which the plaintiff paid to her detriment.
Paul v. CUMIS Life Insurance Co.  B.C.J. No. 373, March 7, 2011, British Columbia Supreme Court, W. Ehrcke J.
The plaintiff brought an action against the defendant life insurance company for payment of death benefits under a life insurance policy held by her husband, the insured.
The monthly premium of $393 for the policy was paid by automatic preauthorized payment taken from a joint bank account held by the plaintiff and the insured. In September 2008, the account was frozen by the bank in response to a request from the Canada Revenue Agency, and the preauthorized premium payment for that month did not go through. The insurer sent the insured a payment reminder notice on October 2, 2008, requesting him to send a cheque or money order for two months' premiums by October 23, 2008, otherwise coverage under the policy would lapse. On October 9, 2008, the insurer sent a "Life Insurance Lapse Notice" stating that the policy had lapsed as of August 28, 2008, because the premium payment had not been received.
The insured died on November 24, 2008. The unopened notices from the insurer were discovered amongst his papers the next day, and a friend of the plaintiff contacted the insurance company on her behalf. She was advised that the premiums had not been paid, and to keep the life insurance policy in effect, the outstanding premiums in the amount of $1,179 needed to be paid right away. The plaintiff paid the outstanding premiums, and on December 3, 2008, the insurer sent a letter to the insured confirming receipt of the payment and that coverage had been reinstated effective August 28, 2008.
The plaintiff's claim for the death benefits payable under the policy was submitted to the insurer on December 29, 2008. The insurer denied the claim on the basis that the policy had lapsed on August 28, 2008, and had been reinstated in error. It took the position that an administrative error did not alter the fact that the insurance had lapsed and that the insured, by virtue of being deceased, would not have been able to meet the reinstatement requirement of completing a new application for insurance prior to coverage being reinstated.
At trial, the plaintiff argued that the insurance was in force at the time of the insured's death because the insurer had failed to terminate coverage by giving written notice by registered mail in accordance with s.17(1) of the Insurance Act, R.S.B.C. 1996, c. 226, which permits an insurer to terminate a contract of insurance by giving written notice by registered mail if a premium payment is dishonoured. The insurer successfully argued that s.39 and 40 of the Insurance Act applied with respect to dishonoured premium payments for life insurance policies and superceded s.17. Sections 39 and 40 provided that if a premium payment is dishonoured, the premium is deemed not to have been paid and may be paid within a specified grace period. These sections do not provide for termination by registered mail in the event of a dishonoured payment. Rather, the insurance policy stated that the certificate of insurance terminated at the end of the grace period if the premium was not paid. The court accepted the insurer's argument that the policy terminated automatically when the premium was not received within the grace period and that notification of lapse, by registered mail or otherwise, was not required.
The plaintiff argued in the alternative that if the insurance had lapsed for non-payment of premiums, then it was validly reinstated retroactive to August 28, 2008, when the insurer requested and the plaintiff paid the back premiums. The plaintiff argued that although the insurer would have been entitled to refuse reinstatement had it requested new evidence of insurability, it waived its right to avoid the insurance and deny coverage when it did not request that information. The insurer argued that the doctrine of waiver could not apply because waiver requires knowledge of the rights being waived, and the insurer did not know the insured had died. The court held that waiver does not require full knowledge of all possibly relevant information, but rather a full knowledge of the right or rights being waived. In this case, the right being waived by the insurer was the right to require a new application, including renewed evidence of insurability, as a precondition for reinstating the insurance. The court held that there was little doubt that the representative of the insurer who spoke with the plaintiff's friend on the day after the insured's death had a full knowledge of the insurer's right to require new evidence of insurability prior to offering to reinstate coverage. The court also noted that the insurer had ample time to reflect on the terms and conditions of the policy and to insist that the insurance would not be reinstated except in accordance with the terms of the policy, including the insurer's right to require renewed evidence of insurability prior to reinstating the policy. The insurer also argued that the right to demand new evidence of insurability had not been clearly abandoned because s.11(1) of the Insurance Act requires a waiver to be in writing. The court held that this requirement was satisfied by the December 3, 2008 letter confirming receipt of the payment and reinstatement of coverage.
On its own initiative, the court considered the issue of estoppel and held that the insurer was estopped from denying coverage on the basis of its conduct, namely, the representation that the insurance would be reinstated upon payment of the back premiums, and the plaintiff's payment of the back premiums on the basis of that representation, which was to her detriment in the amount of $1,179.
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