An applicant for life insurance is required to disclose all matters that are relevant to determine the risk of death within personal knowledge. But what is meant by “all matters”? Or “within personal knowledge”? How does the person know when something should be disclosed? Must the applicant volunteer information or only answer the questions posed by the insurer? This basic disclosure requirement dates back to an ancient legal case (1766): …Insurance is a contract upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only: the under-writer trusts to his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge, to mislead the under-writer into a belief that the circumstance does not exist, and to induce him to estimate the risque, as if it did not exist.
No longer reflects reality
The context in which the modern insurance contract is formed has changed. The basic disclosure requirement is premised on the “special facts” being within the personal knowledge of the applicant and not readily available to the insurer elsewhere. However, this premise no longer reflects reality. Increasingly, information can be found in the public domain and in documents accessible by an insurer. Today, insurers can gather personal information about the applicant from various public and semi-private sources. Public sources of information include internet searches and instantaneous news feeds. Semi-private sources are those that insurers can access with the permission of the applicant, such as MIB checks, OHIP records, doctor’s records, driving records, criminal checks and financial records. Should an applicant be held responsible for non-disclosure of a piece of information available in the public or semi-private sphere but which the insurer chose not to gather? In the 1700’s case, there was a war in a location to be visited by an insured ship. Since the insurer is presumed to know about matters in the public domain, the applicant was required to disclose the location of the ship but was not required to mention the war going on there. If an insurer is generally responsible to gather publicly available information related to the policy, a life insurer specifically should be required to gather all publicly available information about the applicant. The increased amount of publicly available information should reduce the applicant’s duty to disclose and increase the insurer’s duty to gather this information by its own means. Where the insurer fails to take reasonable steps, it complains about its absence when a claim is made.
This issue is particularly relevant where insurers make the business decision not to inquire further into an application for life insurance. For example, an applicant is unlikely to remember the precise details of every check-up with a family doctor but would grant the insurer permission to access OHIP records and the doctor’s records. If the insurer never requests permission to access OHIP records, should it be allowed to deny a claim because it was never told about information that was always available within the OHIP record? We suggest not. The industry should update these archaic insurance disclosure obligations to reflect the realities of today’s insurance industry and the big players that insurance companies have become. In the December issue, we will explore in greater detail the modern duties of the applicant.