There has been a lot of commentary in the media about naïve Canadians inadvertently failing to provide full disclosure on their applications for travel and disability insurance. A CBC Marketplace episode highlighted a number of situations where people completed insurance applications, thinking they were covered in case of illness or medical expenses. In the broadcast, all of the featured segments involved denials of coverage on the basis of non-disclosure which were apparently successful or did not result in litigation.
Conversely, a recent poll from TD Insurance found that 19 per cent of Canadians were not “completely truthful or omitted information” on their applications.
A recent decision in Manitoba resulted in a decision in favour of coverage despite what this writer views as some significant omissions on an application for disability insurance. This article will review that decision and also highlight the issues to be dealt with in the upcoming Court of Appeal hearing, which is yet to be scheduled.
In Badenhorst v. GWL Assurance Company 2011 MBQB 217, the plaintiff was a physician with two children, one of whom had been diagnosed with Asperger’s syndrome. In March, 2006, Dr. Badenhorst suspected her husband was being unfaithful. In July, 2006, she caught him with her best friend. In an effort to salvage the marriage, she underwent counselling, as did her children and husband. Between July 13 and October 31, 2006, she met with a psychiatrist 13 times. Her husband attended most of those sessions. In September, 2006, they separated. The first psychiatrist referred her to another psychiatrist. Dr. Badenhorst saw the second psychiatrist 10 times between November 27, 2006 and January, 2007. Before the end of January, 2007, Dr. Badenhorst and her husband attended on the first psychiatrist 3 times. They subsequently divorced.
She later described catching her husband with another woman and her subsequent divorce as the most catastrophic events of her life.
In November, 2006, Dr. Badenhorst applied to GWL Assurance (the “Insurer”) for disability insurance. She met with an agent in a coffee shop and completed the application together with that agent.
In the medical questionnaire contained within the application for insurance, there were a series of questions requiring a yes or a no checkmark. Where yes was checked, details were to follow. Dr. Badenhorst checked “no” to all of the questions and did not provide any details.
Two of the questions were as follows:
7. Have you ever received treatment or counselling for or had any known indication of burn out, chronic fatigue, anxiety, depression; or any psychiatric disorder?
9. In the past 5 years have you?
(b) had a consultation with a physician, chiropractor, psychologist or therapist not mentioned in question no. 6 or 7?
On November 28, 2006, one day after her first visit to the second psychiatrist, an employee of the Insurer interviewed her by telephone. Among the list of questions was the following:
15(a) have you ever consulted a psychiatrist, psychologist, or Counsellor for any reason?
15(b) have you ever had any symptoms of anxiety, depression, stress or fatigue?
(emphasis added)
On December 2, 2006, Dr. Badenhorst signed the application. On February 2, 2007, Dr. Badenhorst signed a declaration, as follows:
I/We, the undersigned, declare that:
Since the completion of the medical evidence form dated 2 December 2006, submitted to GWL in connection with the Applicant:
- The insured has not been examined or treated by a physician or other health care practitioner, except as may have been required by GWL; and
- The insured has not suffered any injury, disease or illness and has not undergone any surgery;…
The policy was issued. A little over a year later, on April 10, 2008, Dr. Badenhorst filed a disability claim under the policy. In her initial application, she indicated that the symptoms first appeared on March 4, 2006. She described the nature and details of her illness as “Depression Anxiety”.
Her psychiatrist, the second one that she saw alone, reported that she had Dysthymia and anxiety disorder not otherwise specified. He also indicated that the symptoms first appeared on March 4, 2006, when she became aware of her husband’s infidelity and about 8 months before she applied for the disability insurance. The collective medical findings were described as Anergia, Anhedonia, Insomnia, episodic anxiety with panic attacks, depressed mood, guilt, negative thinking. She suffered from a severe impairment of focus, concentration, mood and energy with anxiety on a frequent basis rendering her unable to work. The psychiatrist referenced the first visit as November 27, 2006 and that they occurred twice weekly to April 11, 2008. The Insurer denied her application for benefits on the basis that she had made misrepresentations on her application.
At trial, the essence of Dr. Badenhorst’s evidence was that she answered the questions on the application for insurance truthfully. She interpreted them as relating to the health and did not understand that the Insurer might be interested in marriage counselling. She said that she indicated March, 2006, as the date of her first symptoms because that was the date she first suspected her husband of infidelity and that did not have anything to do with her disability.
The first psychiatrist said that he provided services which lay people would refer to as marriage counselling, although psychiatrists refer to them as psychotherapy. He thought at one point that Dr. Badenhorst might be headed into depression although he did not tell her that. He offered an antidepressant which she declined. The dosage he offered was to assist her with sleep. A much larger dosage would be needed for antidepressant effect. He described her as having an adjustment reaction with anxious moods, a typical reaction to witnessing her husband’s infidelity.
The second psychiatrist said that he had no concern about a psychiatric disorder. In his materials submitted to the Insurer, he had also described the date of the first symptom as being March, 2006 in the application materials on the physician’s report. In his follow up report to the Insurer, he described Dr. Badenhorst’s full DSM-IV diagnosis:
Axis I: Major depressive Episode, Severe Dysthymia Anxiety Disorder NOS (Not Otherwise Specified) Partner Relational Problem
Axis II: Deferred
Axis III: Non-Contributory
Axis IV: Marital breakdown and separation; single parent; occupational stressors
Axis V: 50 (Global Assessment of Functioning)
Dr. Badenhorst is currently suffering from a severe Major Depressive Episode, diagnosed in January, 2008. This is the primary diagnosis and also the basis for the recommended medical leave from work. This patient had no previous known history of depression.
He also wrote:
The patient is also suffering from Dysthymia (the combination of Major Depression and Dysthymia is known as double depression), diagnosed on October 24, 2007. There was no previous diagnosis of Dysthymia, and prior to October 2007 the patient would not have met criteria for the diagnosis. There was no pre-existing condition here; the reference to symptoms first appearing in March 2006 (in the Physician’s Initial Statement) refers to the patient’s marital difficulties, ultimately leading to martial breakdown and reflected by the diagnosis of Partner Relational Problem, above.
The Insurer argued that the questions were unambiguous. In particular, when the application asked whether the plaintiff had, in the preceding 5 years, had a consultation with a physician, chiropractor, psychologist or therapist, the truthful answer would have been “yes” because she had consulted with two psychiatrists during that period. If anyone understands that psychiatrists are also physicians, it is a physician. The truthful answer to the telephone interview question (have you ever consulted with a psychiatrist, psychologist or Counsellor for any reason?) would also have been “yes”.
The Insurer further argued that even if the plaintiff believed her answers were correct, her interpretation was irrelevant and the claim should fail. She could have advised the Insurer that she was undergoing marriage counselling if she had any doubt about her answers. The first psychiatrist’s notes disclosed significant episodes of anxiety and depression and his thinking that she was heading for a major depression. Within less than a year, she suffered the major depression predicted.
Dr. Badenhorst conceded that if the questions were to be interpreted strictly, her answers were incorrect. However, the questions were ambiguous because of the context in which they were asked. The heading of the section relating to “Health” contained no question about marriage counselling or whether the applicant was married. A reasonable person would not expect that these questions were intended to find out about marriage counselling.
Dr. Badenhorst also said she inserted the wrong date as to the onset of her first symptom and that it should have been later.
In arriving at his decision to allow the claim, the trial judge noted the obligation on Dr. Badenhorst to answer the questions truthfully, to the best of her knowledge. However, if there is some information of which the applicant is not aware, she had no responsibility to find the answer.
With respect to the adequacy of Dr. Badenhorst’s disclosure, the trial judge framed the issue as determining what the question meant to the applicant and to a reasonable applicant. As the Insurer posed the question, it bears the obligation to ask the question in its desired fashion. Ambiguities are to be resolved against the Insurer.
The trial judge found that ambiguities may arise from a variety of factors, including the headings to a series of questions, the words used in the questions, words coming before the questions, and the context and history of dealings between the parties.
Once the meaning of the question is determined, the trial judge said that the next analysis is whether the claimant answered the question truthfully. If the answer was truthful, the Insurer’s defence of non-disclosure will fail. If, objectively, the answer is false, the claimant is has failed to disclose and the policy is voidable at the Insurer’s option. The Insurer must establish that a reasonable insurer considered the question material to the risk, and either would have declined coverage or charged a higher premium had it known the correct answer.
The trial judge noted the heading, the lack of inquiry about marriage, and accepted the reasonableness of Dr. Badenhorst in not understanding that the Insurer intended to ask about marriage counselling. The trial judge wrote:
A reasonable person would not have regarded the plaintiff as a sick person or suffering from a disease, illness or infirmity. Her reaction to the events that took place in her life in this period were normal and for a short duration. The interpretation propounded by GWL is not reasonable in the context in which the questions were asked. In the very least, there is an ambiguity, and the plaintiff’s interpretation must prevail. I find that the plaintiff had not “(7)…ever received treatment or counselling for or had any known indication or burnout, chronic fatigue, anxiety, depression; or any psychiatric disorder” or “(9b) had a consultation with a physician, chiropractor, psychologist or therapist not mentioned in question no. 6 or 7” in relation to her health.
The issue is not whether marriage counselling is a health issue. It is whether the plaintiff and a reasonable applicant for insurance would recognize that the questions sought to find out whether the applicant had received marriage counselling.
The trial judge also found that the questions during the telephone interview also related to health as opposed to marriage, marriage counselling, or other counselling. He found that a reasonable person might regard questions about marital counselling as relating to lifestyle issues and not health.
Ultimately, he found that the plaintiff did not consult the two psychiatrists for any reason related to her health but rather for marriage counselling related to her lifestyle. He found that the Insurer failed to establish misrepresentation and it was required to pay her claim.
Dr. Badenhorst also claimed damages for mental distress. The trial judge characterized the policy as being a “peace of mind” policy. She gave evidence that she was distressed not only by her husband’s infidelity, but also by the denial of her claim. She said she was forced to borrow and went into debt which also added to her stress. Notwithstanding her apparent financial limitations following the denial, she purchased a condo in South Africa for $100,000.
The trial judge wrote that an award of damages for mental distress does not require wrong doing by an Insurer. Rather, an award for mental distress results from reasonable and foreseeable damages caused by the denial of a claim under a peace of mind policy. He assessed damages for mental distress at $30,000, $5,000 less than that claimed by Dr. Badenhorst.
The trial judgment was rendered September 27, 2011. The Insurer filed a Notice of Appeal on January 13, 2012.
The issues to be determined on the appeal are as follows:
- In deciding whether a policy is void for non-disclosure of material facts, the court must determine two things. Whether the insured failed in her duty to disclose facts within her knowledge, and second, whether the undisclosed facts would have casued a reasonable insurer to decline the risk, insert an exclusion, or require a higher premium. Both issues are to be decided on an objective standard. The questions in an application are to be interpreted according to their plain and ordinary meaning based on the reading of a reasonable lay person. The question of whether a fact is material to the insurance risk is to be determined from the insurer’s perspective, not that of the insured. A material fact is not to be assessed according to what a reasonable person would have considered material to tell the insurer.
- Was Dr. Badenhorst was credible and whether her understanding of the materiality of the undisclosed facts was in accordance with that of a reasonable person;
- Whether damages for mental distress ought to have been awarded.
The Insurer relies on the principles outlined in the leading text on the subject of non-disclosure of material facts, Norwood on Life Insurance Law in Canada. According to Norwood, those principles are:
What is and what is not a fact “material” to the life insurance risk must be considered, therefore from the point of view of the insurer, rather than from the viewpoint of the insured and life insured. They are not competent to assess elements of insurability, so it is not open to them to make the decision as to which facts are important or unimportant, and to colour their representations or omit from their representations matters which they may feel have no bearing upon the risk, albeit that their view of such matters is honest and genuine. As a leading judgment put it:
The proper question is whether any particular circumstance was in fact material, not whether the party believed it to be so.
In other words, good faith upon the part of the insured or the life insured arising from his or her innocent failure to appreciate the materiality of the matter in question is not considered to be a defence against a misrepresentation which is challenged as a ground for avoiding the contract, if the matter is demonstrated to be material to the risk from the point of view of a reasonable insurer.
The courts, of course, are inclined to be sympathetic to the insured or life insured who makes a representation in good faith, without realizing the significance of the matter which they innocently misrepresent or fail to disclose, and it has been suggested from time to time that they should not be penalized if the fact in question was one which a reasonable person would not have realized as being a material fact.
This suggestion was, however, categorically rejected in the leading case [Ontario Metal Products, supra] on the subject and the failure of the insured or life insured to appreciate the materiality of the undisclosed known fact will generally be held to be insufficient to prevent the insurer from avoiding the contract.
As to facts an insured “knows”, Norwood writes:
…the essential duty which falls upon the insured and life insured is to disclose “facts” within their “knowledge”. .. knowledge of facts should be considered to be that of a reasonable person who knew or should have known.
Where the insurer’s application asks a straightforward factual question [E.g., “In the last 12 months, have you seen a doctor or are you now planning to?”], actual knowledge of the event requires disclosure to the insurer, but where it requires an understanding of information conveyed to the insured or life insured, comprehension comes into play…
Non-disclosure or misrepresentation of a known event or information may have been due to misjudgment on the life insured’s part where they felt that the fact was not really significant and therefore did not consider it important to tell to the insurer. But in life insurance, a failure to disclose a known material fact, even innocently or through inadvertence or because the fact slipped the insured’s memory, entitles the insurer to avoid the contract.
Essentially, therefore, the life insured’s duty is to disclose to the insurer the fact of all of their symptoms, consultations, and medical treatments or tests, regardless of the life insured’s own belief as to their importance or significance or that they feel they are free from health problems.
The Insurer will argue on appeal that the law is clear that the belief or understanding of the plaintiff and the credibility of her evidence as to the meaning of the questions and materiality of the facts are not to be considered by the trial judge. The issue is not whether the plaintiff or a reasonable person would recognize that the questions sought to find out about marriage counseling. This is precisely what a trial judge is not to consider or decide. Rather, the trial judge must decide whether there were facts within the knowledge of the plaintiff that were not disclosed, regardless of whether she or a reasonable person would have recognized they were relevant or important to disclose. As set out in Norwood, an insured is not competent to assess elements of insurability and it is not open to them to decide which matters may have a bearing on the risk.
The issues surrounding Dr. Badenhorst’s credibility will not be summarized in this article, although they will be canvassed in the appeal hearing. Of note is the fact that she admitted eight times on examination for discovery to having had a panic attack in June, 2006, but then denied having a panic attack at trial.
With respect to issue number 3, the damages for mental distress, the Insurer agreed that a disability insurance policy is the type of contract that could result in an award of mental distress damages in the appropriate circumstances. In Filder v. Sunlife Assurance Co. of Canada, [2006] 2 S.C.R. 3, the court held that it must be satisfied that the mental distress was caused by the denial of the claim and that the degree of mental suffering was sufficient to warrant compensation. In other words, not surprisingly, a plaintiff must prove the loss.
In this case, Dr. Badenhorst suffered profound mental distress due to her disability, which arose prior to the denial of the claim, and a variety of other circumstances, including her husband’s betrayal, the end of her marriage, her husband’s failure to pay support, and stress relating to her children and her job. She provided no proof of actual financial difficulties as a result of the denial of her claim. Any award of damages for mental distress should have considered these facts and the award, if merited at all, should have been very modest.
The appeal has not yet been heard. The outcome will be a subject of interest to disability insurers which might merit further comment in a future issue.