Life Insurance and Relief from Forfeiture in Ontario
Many people purchase life insurance to provide financial security for their loved ones. Upon the purchase of such insurance, the insured enters into a binding contract with the insurance company, containing various conditions that must be fulfilled for the policy to remain valid and active. But what happens if the insured omits to discharge one of their contractual obligations, for example, missing one or several premium payments, and an unfortunate event transpires that would ordinarily see the policy payout to the beneficiary? It might be easy to think that the contract is no longer valid since the insured did not meet their contractual obligations, and in some cases, that may be correct. But the law in Ontario gives courts the power to redress this situation for some insured people if certain criteria are met. This is called relief from forfeiture, and this blog post will discuss when this solution could potentially be available.
What Is Relief from Forfeiture?
Relief from forfeiture is a remedy that can be afforded to people who have signed an insurance contract but have not strictly complied with all the conditions stipulated therein. The Supreme Court of Canada has said that the purpose of this remedy “is to prevent hardship to beneficiaries where there has been a failure to comply with a condition for receipt of insurance proceeds, and where leniency in respect of strict compliance with the condition will not result in prejudice to the insurer”[1]. In other words, this is a potential solution for a beneficiary when the insured did not fulfill some condition of the insurance contract.
It is important to note that the power to grant this redress is purely discretionary on the part of the court, and no one should automatically expect to be granted such relief. For a court to consider this relief, certain criteria must be met. If you find yourself in a legal bind, don’t hesitate to reach out to a civil lawyer.
The Three Factors to Be Considered by Courts When Considering Granting Relief from Forfeiture
In the case of Kozel v Personal Insurance Co[2], the Ontario Court of Appeal writes the following about what a court will consider: “In exercising its discretion to grant relief from forfeiture, a court must consider three factors: (i) the conduct of the applicant, (ii) the gravity of the breach, and (iii) the disparity between the value of the property forfeited and the damage caused by the breach“[3]. Note that the insured is not required to prove all of these elements to be considered for relief. Rather, the court must balance them when making their discretionary decision[4]. Let us now discuss each of these in turn.
(1) The conduct of the insured
This may be the most impactful criteria that can convince a court to either grant relief or not. The court will analyze how the insured conducted themselves regarding the contractual relationship with the insurance company. To do so, courts have established a reasonableness test that takes into account,
“the nature of the breach, what caused it and what, if anything, the insured attempted to do about it. All of the circumstances, including those that explain the act or omission that caused the lapse (forfeiture) of the policy, should be considered. It is only by considering the relevant background that the reasonableness of the insured’s conduct can be realistically considered”[5].
If an insured does not act reasonably, they cannot realistically expect relief from forfeiture[6].
(2) The gravity of the breach
A court inquiry into the gravity of the breach will look at “both the nature of the breach itself and the impact of that breach on the contractual rights of the other party”[7]. These inquiries will obviously vary depending on the facts of each case. Still, it suffices to say that a substantial impact on the contractual rights of the other party will most likely be ground not to grant relief from forfeiture.
(3) The disparity between the value of the property forfeited and the damage caused by the breach
To better understand this relief step from forfeiture analysis in an insurance context, consider the following example found in Sage v Peel Mutual Insurance Co[8]. It must be noted that this is not a case of life insurance, but the essence of the analysis remains the same. The insured had gotten into a vehicle accident and claimed that the insurance company should pay for the damages to the vehicle since they had a policy with them. Conversely, the insurance company’s position is that (for technical reasons) the insured had been required to pay an additional premium to continue to be insured, but this had not been done before the accident. Therefore, they claim that there was no coverage at the time of the accident.
The trial judge concluded that “there is a substantial disparity between the loss of the coverage of the insurance […] and the value of the additional premium required”[9]. In other words, this meant that if relief from forfeiture were not granted, the insured would have to pay a substantially higher amount to fix the vehicle than if they were to pay the premium that the insurance company was claiming. This ultimately weighed in favour of granting relief from forfeiture to the insured.
Statutory Provisions That Empower Courts to Grant Relief From Forfeiture and Their Differing Applicability
Two legislative acts in Ontario empower a court to grant relief from forfeiture. But there are differences as to when each one can be used.
The Insurance Act
Section 129 of the Insurance Act[10] states the following:
Relief from forfeiture
129 Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured concerning the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just.
Courts have interpreted this section rather narrowly due to its wording. Section 129 can only be used in situations that pertain to “policy conditions — statutory or contractual — that relate to proof of loss“[11] (emphasis added). This narrow application makes the remedy available at section 129 not as versatile as its counterpart in the other Ontario legislation that includes a provision regarding relief from forfeiture.
The Courts of Justice Act
Section 98 of the Courts of Justice Act[12] reads as follows:
Relief against penalties
98 A court may grant relief against penalties and forfeitures on such terms as to compensation or otherwise considered just.
There is a stark contrast between this section and section 129 of the Insurance Act. This section is written rather broad, which permits much more lenient interpretation by the courts. Since section 129 relates to proof of loss, that means you can only get relief from that section after the loss has occurred. Contrarily, section 98 “is available to contracts regulated by the Insurance Act and generally operates where the breach of the policy occurred before the loss took place”[12].
A simple example would be if the insured missed a premium payment and shortly thereafter passes away, section 98 would be the appropriate section to ask for relief in court. It is still a matter of discretion afforded to the court that’s been seized, but at least it is a solution to when the breach occurs before the loss.
In summary,
In the insurance context, relief from forfeiture is a discretionary legal remedy given to courts in Ontario under section 129 of the Insurance Act and section 98 of the Courts of Justice Act. To grant this relief, a court must be satisfied that, above all else, an insured conducted themselves reasonably. So if ever you have purchased life insurance, and a dispute arises between your beneficiary and the insurance provider about a breach of a contractual condition, there is hope! There’s no guarantee a court will grant this relief, but you can rest easier knowing that there is some leeway if you have not strictly followed the contract. As you can see, a civil lawyer can help you in many ways. If you are facing a legal issue, it is important to consult with an experienced attorney who can advise you on the best course of action.
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