Having a life insurance claim denied can deprive you of huge sums of money. Here’s why you may have a legal case

Getting a life insurance payout denied isn’t all that common, but the impact can be massive when it happens.

Data from the Canadian Council of Insurance Regulators show 1.1 per cent of people claiming individual life insurance and 3.6 per cent of people claiming group life benefits (such as those from a workplace plan) were denied in 2023.

With roughly 23 million Canadians holding $5.7-trillion in life insurance value, that could still amount to a significant amount of denials per year.

“It can be devastating, especially if a breadwinner passes away and you have significant financial debt or deficits in the future,” said Nainesh Kotak, founder of Kotak Personal Injury Law, who said the average life insurance protection per household in Canada is $458,000.

Lawyers stress that anyone who experiences a claim denial should get legal advice, because they may have a case even when it seems that an insurance company has a clear cut argument for denial. That’s because insurance companies are governed by strict legislation that can overrule some of the terms in a contract.

Some of the most common reasons for a life insurance claim denial can be a misrepresentation of facts on your application, a lapse in payments, a death by suicide within two years of signing the policy, or death during a prohibited activity such as auto racing or illegal acts.

However, Mr. Kotak said there can be successful legal arguments in these situations. He said he takes on the majority of cases that clients bring to him, and every single one has resulted in at least a partial payout, with many resulting in a full payout plus expenses from the insurer.

Below, we list some advice from Mr. Kotak and Sivan Tumarkin, a partner at Samfiru Tumarkin LLP.

Incorrect information on an application is not enough to sink a claim

Mr. Tumarkin said the most common reason for denials is misrepresentation of a client’s personal information on an application. The application process usually lots of questions, and insurers will look at the details closely before issuing a payout.

However, misrepresentation alone isn’t enough cause for a denial. If the claim is made within two years of purchasing the policy, the insurer needs to demonstrate that the misrepresentation is “material” – significant enough that it would have prevented them from either insuring the client, or insuring them at the premium they were given.

After two years, it doesn’t even necessarily matter if the misrepresentation was material. Now the insurer has to prove that the client was fraudulent or recklessly misrepresenting the truth. Mr. Tumarkin said the legal bar for this is very high, leaving room for legal arguments.

For example, he worked with one client that didn’t speak English well, and was successfully able to argue that her the language barrier during the application process meant the misrepresentation was not fraudulent. Someone who said they don’t have a heart condition but has seen a cardiologist could also plausibly argue against the insurer if it’s the reason they were denied.

When there’s ambiguity in a contract, the court’s are required to consider the individual’s interpretation

If there’s two ways to interpret a provision in a life insurance contract, Mr. Tumarkin said the law requires the court to use the individual’s preferred interpretation, rather than the insurer’s, as long as it is considered reasonable.

This can give you a significant advantage when fighting against a claim denial, and it’s part of why lawyers say you should always check to see if you could have a case before giving up on your life insurance claim.

“Sometimes we’re literally fighting over a comma, period or word in a provision, which could mean hundreds of thousands of dollars to our client,” Mr. Tumarkin said.

“If we can show that there’s ambiguity in the policy, the insurance company will most likely settle the case.”

There’s legal wiggle room for some rules in your insurance contract

Let’s say your life insurance contract requires you to notify them of a new disability within 90 days, and you end up notifying them in around 100 days.

An insurance company could say that your failure to meet their terms invalidates your policy, but Mr. Tumarkin said “the law actually gives you some leeway on this. The courts have said that if you apply a little bit later, it’s not fatal to your case.”

He said it’s one example of safeguards that the government has put in place that can protect them, even when they don’t follow the terms of their contract.

Timing is one of the few things that can destroy a legal challenge

Mr. Kotak said people generally only have two years to launch a legal challenge against an insurance claim denial. If you miss this deadline, all of the advice listed above is irrelevant.

There are a couple steps you can take when you first are issued a denial before meeting a lawyer.

The first is to ask the insurance company for a copy of the life insurance application. Mr. Kotak said insurance companies will often cite specific errors in an application, but won’t provide the entire form itself, which can be useful for building a case or showing discrepancies in the company’s denial.

If there was a witness present during the application, they can also be a great resource to help prove fraud didn’t occur.