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Material withholding renders life insurance coverage voidable

In Mohammad v. The Manufacturers Life Insurance Company, the Ontario Court of Appeal reversed the lower court's decision that coverage was voidable for want of material fact disclosure. The material fact at issue was involvement in a terrorist group activity. The Ontario Court of Appeal held that the failure to disclose this material fact was sufficient to render coverage voidable, even though there were no specific questions on the application, which would have required the applicant to disclose his involvement in such activity.

Facts

In 1968, while he was a member of the Popular Front for the Liberation of Palestine (PFLP), Mahmood Mohammad (Mohammad) stormed an El-AI civilian airliner and killed at least one person by throwing grenades and firing five rounds at the flight occupants. After his conviction, Mohammad was released from prison in 1970 as part of a hostage negotiation involving another PFLP takeover of another airliner. Mohammad moved to Lebanon and in 1987 came to Canada fraudulently, by using an alias.

On April 10, 1987, Mohammad completed an application for life insurance. In the application, Mohammad disclosed that he had just moved to Canada but made no representation as to his membership in the terrorist group. The life insurance application did not ask any questions about immigration status or criminal history.

In 1988, a year after he applied for life insurance, Mohammad was ordered to be deported based on misrepresentations of material facts as part of his application for Canadian permanent residency. Mohammad then applied for refugee status. In an affidavit filed in the immigration proceeding, Mohammad stated that his life would be in danger if he were deported.  Following various immigration legal proceedings, Mohammad was deported to Lebanon in 2013. He died from lung cancer in 2015. His wife then sought death benefits pursuant to the policy.

Court’s reasoning

The Court of Appeal found the failure to disclose past terrorist activities as being material to the life insurance application. The appellate court viewed the absence of specific questions prompting such disclosure in the life insurance application as not indicative of materiality. In considering evidence filed by Mohammad in the immigration proceeding, the court had no difficulty holding that Mohammad intentionally hid information about his past activities to the insurer such that it constituted a fraudulent withholding. In light of such a finding, the policy was rendered voidable.

Takeaway

The Court of Appeal’s decision serves as a reminder that failure of an insured to discharge his or her disclosure obligation can invalidate coverage. The court recognized that some information is so fundamental to the underwriting process that an insurer need not specifically ask as part of the application.

Overall, this decision serves as a reminder that summary judgment is an effective tool to challenge the prosecution of denials made on grounds of materiality where there is an evidentiary basis to prove such a material withholding.

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