Supreme Court of Canada
Zurich Life Insurance Co. of Canada v. Davies, [1981] 2 S.C.R. 670
Date: 1981-12-17
Zurich Life Insurance Co. of Canada (Plaintiff) Appellant;
and
Barbara Wallace Davies (Defendant) Respondent.
1981: December 2, 17.
Present: Laskin C.J. and Ritchie, Estey, McIntyre and Lamer JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Contracts—Insurance—Interpretation—“Conditional Insurance Agreement”—Death occurring before policy issued—Applicant’s insurability.
Appellant issued a “Conditional Insurance Agreement”, a document of adhesion, to George F. Davies on his application and payment of part of the premium. Before determination of his insurability and before the policy issued, Davies died. His widow’s claim for the insurance was rejected at trial but allowed on appeal. The principal issue before this Court was whether the agreement stipulated a condition precedent to the insurer’s undertaking the risk or was an initial acceptance of the risk, subject to a condition subsequent.
Held: The appeal should be dismissed.
A contract was concluded between the insurer and the applicant. While the agreement contemplated the issue of a policy, it nowhere stated expressly that coverage was dependent on prior proof of insurability. The agreement should be interpreted as providing for interim insurance, subject to defeasance of coverage and not as providing a kind of preferred consideration further qualified by the issuer’s unilateral and untrammelled power to cancel the agreement. A contra proferentem construction should be applied to such a contract of adhesion. There was an onus on the insurer to establish whether the deceased was insurable at the date of his application; this onus was not met.
Allen v. Metropolitan Life Insurance Co. (1965), 208 A.2d 638, referred to.
APPEAL from a judgment of the Ontario Court of Appeal[1] allowing an appeal from the decision of R.E. Holland J. Appeal dismissed.
[Page 671]
Garfield Robert Green, for the appellant.
Russell Kronick and Ronald Prehogan, for the respondent.
The judgment of the Court was delivered by
THE CHIEF JUSTICE:—The principal issue in this appeal, one of first instance, is the proper construction and application of a document entitled “Conditional Insurance Agreement”. This document, one of adhesion, was issued by the appellant insurer to George F. Davies upon the latter’s application on April 11, 1978 for $10,000 of life insurance. A portion of the contractual premium was paid as required and the document in question then issued. Davies died on April 23, 1978 and his widow claimed the amount of the insurance. No policy had been issued pursuant to the agreement. R.E. Holland J. rejected the claim but the widow’s appeal was allowed in a unanimous judgment of the Ontario Court of Appeal.
The Conditional Insurance Agreement is in the following terms:
CONDITIONAL INSURANCE AGREEMENT
Zurich Life Insurance Company of Canada agrees to insure the Proposed Life Insured commencing on completion of Part 1 and Part 2 of the Application, subject to the following conditions:
1) The money acknowledged by the receipt was paid.
2) The Life to be Insured is insurable at standard rates, on completion of Part 1 and Part 2 of the Application under Zurich Life Insurance Company of Canada’s underwriting rules and practices for the policy applied for.
3) This Agreement is governed by the terms of the policy to be issued except that the insurance under this and other Conditional Insurance Agreements with Zurich Life Insurance Company of Canada is the lesser of $100,000 and the total insurance applied for.
4) This Conditional Insurance terminates when a policy issued in response to the application becomes effective.
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5) Zurich Life Insurance Company of Canada may terminate this Agreement by notice to the Applicant. Money paid shall be refunded.
NO REPRESENTATIVE OF ZURICH LIFE INSURANCE COMPANY OF CANADA IS AUTHORIZED TO MODIFY THIS AGREEMENT.
I have read this Conditional Insurance Agreement and I understand it.
Signature of Applicant___________________
Upon receipt of a request from you, the Bureau will arrange disclosure of any information it may have in your file. (Medical Information will be disclosed only to your attending physician). If you question the accuracy of information in the Bureau’s file, you may contact the Bureau and seek a correction. The address of the Bureau’s Information office is:
Medical Information Bureau, 330 University Avenue, Suite 403, Toronto, M5G 1R7. Telephone (416) 597-0590
Zurich Life Insurance Company of Canada or its reinsurer(s) may also release information in our file to other life insurance companies to whom you may apply for life or health insurance, or to whom a claim for benefits may be submitted.
The purpose of the Bureau is to protect its members and their policyholders from bearing the expense created by those who would conceal facts relevant to their insurability. Information furnished by the Bureau may alert the insurer to the possible need for further investigation, but under Bureau rules cannot be used as the basis for evaluating risks. The Bureau is not a repository of medical reports from hospitals and physicians, and information in the Bureau file does not reveal whether applications for insurance are accepted, rated or declined.
The competing arguments of counsel for the parties raise the question whether the agreement stipulates a condition precedent to an undertaking of risk by the insurer or whether it is to be construed as an initial acceptance of the risk subject to a condition subsequent. The insurer contends, of course, that it did not come under any risk until the applicant had been shown to be insurable. The contrary contention was that the risk attached subject to a subsequent showing of uninsurability or to a subsequent termination of
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the agreement pursuant to clause 5 of the agreement. Neither of these events happened before the death of the applicant. It was a further submission of the respondent that there was an onus of proof on the insurer to show that the applicant was not insurable at standard rates under its underwriting rules and practices which were peculiarly within its knowledge. The Ontario Court of Appeal proceeded on this ground in upholding the widow’s claim, holding that the onus on the insurer had not been discharged. Unlike the trial judge, who held that no risk attached because of an unfulfilled condition precedent, the Court of Appeal did not consider the condition precedent—condition subsequent submissions.
There is no doubt that a contract was concluded between the insurer and the applicant, as evidenced by the premium payment and the issue of the conditional insurance agreement. Although the agreement contemplates the issue of a policy, it nowhere says expressly that coverage is dependent on prior proof of insurability. The insurer’s answer to the question whether any benefit flowed to the applicant by reason of his premium payment was that the applicant’s insurability was determinable as of the date of his application for insurance, and any subsequent disability which would make him uninsurable at the standard rate would not disqualify him. All that this means is that the applicant would get a kind of preferred consideration which is further qualified by the unilateral and untrammelled power of the insurer to cancel the agreement before death if no policy had previously issued.
This is a draconian approach to an agreement which is equally susceptible to an interpretation that it provides for interim insurance, subject to defeasance of the coverage. That it is so susceptible is evidenced by clauses 3 and 5 of the document. The Court was referred to two lines of authority in the United States, one asserting that coverage depends on prior fulfilment of a condition precedent and the other supporting a condition subsequent construction. The view taken by the New Jersey Supreme Court in Allen v. Metropoli-
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tan Life Insurance Co.[2] commends itself to me. There are two passages in the reasons that are relevant here, as follows (at pp. 642-43):
Indeed, the very acceptance of the premium in advance tends naturally towards the understanding of immediate coverage though it be temporary and terminable; any collateral advantage other than interim coverage is insubstantial and is not what the lay applicant is generally seeking by his advance payment.
...
Its position is that if Allen was actually insurable at the time of the application, he had full interim coverage, otherwise not, and that its own later determination of uninsurability, though made after knowledge of Allen’s death, is binding so long as it was made in good faith. That involves an interpretation of the receipt which does not appear in its terms… Nowhere within the four corners of the receipt is there any reference to insurability or to the manner in which insurability is to be ascertained. It may well be doubted whether an applicant would ever understandingly agree to accept, as binding, a nonobjective determination of insurability first made by the company after knowledge of his death.
In addition, there is every reason to apply a contra proferentem construction to a contract of adhesion such as we have here.
The agreed statement of facts on which this case proceeded shows that the deceased died of natural causes. He had had a check-up by his own physician in the month preceding his death.
The insurer thereupon required a summary of clinical history from that physician on April 19, 1978. It was received by the insurer on April 28, 1978 after death occurred. The deceased had been experiencing some pain and his physician suggested a myelogram test and, if it proved negative, an aortagram. The deceased died before either of the tests could be taken. It was agreed that if the deceased had been suffering from an aortic aneurysm he would not have been insurable at standard rates. The opinion of the deceased’s doctor was that the accused could have been suffering from an aortic aneurysm. The insurer’s underwriting department determined that the deceased could not be insured until the possibility of an aortic
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aneurysm had been negated. Of course, it was not known whether or not the deceased was insurable at standard rates at the time he applied for life insurance.
In so far as the result in this case depends on whether the deceased was insurable at the date of his application, I see no reason to differ from the view of the Ontario Court of Appeal that there was an onus in this respect on the insurer which it had not met. Moreover, as counsel for the respondent asserted, the mere recommendation of a medical consultant does not determine insurability.
On both of the grounds canvassed above, the appeal fails and must be dismissed with costs.
Appeal dismissed with costs.
Solicitors for the appellant: McKeown, Yoerger, Spearing, Toronto.
Solicitors for the respondent: Goldberg, Shinder, Gardner & Kronick, Ottawa.