When is a change in “health” the same as a change in “insurability?” Well, according to an Ontario Court of Appeal decision in mid-January, “changes in insurability” and “changes in health” are not synonymous, at least when it comes to the wording on a delivery receipt issued by Industrial Alliance Insurance and Financial Services Inc.The decision dealt with the discovery of a heart condition after a man applied for his life insurance policy – but before Industrial Alliance delivered the policy.

The court held in favour of the widow of the man who died about three months after the policy was received. From the time the man applied for the policy on Jan. 16, 2009, and the time he was given a delivery receipt on Feb. 17, 2009, the man discovered he had a heart murmur. He died sometime after he signed the delivery receipt.

The issue stemmed from the interpretation of a section of the Ontario Insurance Act, which stipulates that “no change has taken place in the insurability of the life to be insured between the time the application was completed and the time the policy was delivered.” If there has been a change in insurability, the contract does not take effect.

However, Industrial Alliance’s delivery receipt asked whether the man’s “state of health or occupation” had changed since the application was signed.

Change of insurability

The court noted that the insurance company’s own director of underwriting agreed that the term “state of health” was never defined in the insurance policy.

In upholding the lower court ruling, the Court of Appeal said: “The factual reality in this case is a simple one: in its contractual document, the appellant [Industrial Alliance] does not define “change of insurability”; in the document it requires an insured to sign, it directly links “change of insurability” to a potential insured’s “state of health” and “occupation”; and, in this case, the appellant concedes that the insured’s state of health did not change in the relevant time period. In these circumstances, the trial judge’s charge was correct and the jury’s verdict was reasonable.”

The Court of Appeal upheld the lower court ruling that granted a life insurance award of $280,000 to the man’s widow.

Whether Industrial Alliance will be making changes now to the wording of its delivery receipts has still to be decided.

“Industrial Alliance will look at [the court decision] and will consider whether we need to make any changes in our delivery receipt. No decision has been made yet,” said Pierre Picard, the insurer’s manager of public relations.

Frank Zinatelli, vice president and general counsel at the Canadian Life and Health Insurance Association (CLHIA), said the issue of whether insurers will now change their delivery receipts as a result of this decision is a topic that will be discussed by the organization and its insurance members in the months ahead and will depend on the company.

Specific language in delivery receipts is not mandated, unlike in the property and casualty industry, said Zinatelli. “This is very competitive and it allows companies, by the words they use, to accept different degrees of risk.”

However, he believes this particular case was very specific and will not have an effect on other insurers.

“What I get from the decision is that it’s really based on the specific circumstances and the specific language in the delivery receipt in this particular case. My own sense is that it does not change the law at all. It basically deals with the specific details in this case.”

He said many people are not going to understand what a “change in insurability” means, so some insurance companies simply ask about a person’s health. “The insurer was trying to make it easier for the person to understand that and the insurer got caught by that,” he said.

Zinatelli said the decision was short and relatively straight forward, but turns on the specific wording of the delivery receipt. “I would be surprised if it had any wide impact.”

Covering all bases

As it now stands, many financial advisors already send out their own delivery receipts with extended circumstances just to make sure they have covered as many bases as possible.

Lawrence Geller, president of Geller Insurance in Campbellville, Ontario, said his company has been sending out its own delivery receipts for a number of years, in addition to the one coming from the insurance company.

Geller said his delivery receipt is intended to cover many eventualities. The Geller delivery receipt asks: Has there been any change in your health or have you consulted or been treated by a medical practitioner since the date of the application of the policy? Have there been any symptoms of any diseases or conditions for which you have not yet consulted a physician or other medical practitioner? Has any application for your health been modified or postponed?

“We issue one of these so it can’t be said we didn’t ask,” said Geller.

He said clients receive both the delivery receipt from the insurer and the receipt from his company and clients must sign both. The one from his company stays with him and is kept on file.

Other advisors have similar delivery receipts. While it’s impossible to ensure you have every single eventuality covered, “everything that caused the problem in this [legal] case was already covered by our delivery receipt,” he said.

He also noted that the Ontario Insurance Act says a delivery receipt can be delivered to an agent to then give to the insured. “The problem is that an agent cannot necessarily sign that there has been no changes to health, or no changes to the [original] answers.”