Transparency in Insurance: The Impact and Legal Implications of Non-Disclosure

In News by northernlaw

Navigating the world of insurance can feel like venturing into a maze, but there’s one rule that stands tall amidst the complexity: the duty to disclose. In Ontario, the Insurance Act requires full transparency when applying for insurance. Section 183(1) of the Insurance Act makes it clear that all relevant information must be disclosed during the initial application process. There’s no room for hiding facts. [1][1]  However,  it doesn’t stop there. Even after you’ve signed the contract, the obligation to be upfront continues. Section 308(3) extends this mandate, requiring continual and accurate disclosure throughout the policy’s duration. [2][2] This means you need to be vigilant and inform your insurer promptly if anything happens that could affect your coverage or the terms of your policy.

What constitutes a failure to disclose?

Understanding non-disclosure in insurance law boils down to three key factors. [3][3] First, it involves examining whether there’s been any hiding misrepresentation or concealment of important facts. Second, it’s about figuring out if the undisclosed info is crucial to the insurance agreement. Lastly, it looks into whether there was any fraudulent intent behind not sharing certain details. Essentially, dealing with non-disclosure in insurance law means carefully looking at these three things to understand if there has been a breach and what the consequences might be. Let’s take a closer look at these three factors.

  1. Misrepresentation or Concealment

In the domain of insurance agreements, the paramount importance of transparency cannot be overstated. At common law, any significant misrepresentation or omission of pertinent information constitutes a breach, irrespective of the applicant’s honesty or lack of intent to deceive the insurer.[4][4] 

  • Misrepresentation can occur when confronted with inquiries, as a simple ‘yes’ or ‘no’ response carries profound implications. Opting for a ‘no’ when the truth leans towards ‘yes’ can amount to a violation of the fundamental duty to maintain good faith and integrity within the insurance contract. [5][5] However, the insured maintains the right to contest such accusations by highlighting any ambiguities in the information sought. [6][6]
  • Concealment of facts arises when the insured withholds pertinent details, potentially obscuring crucial information from the insurer’s assessment. However, exceptions frequently carve out nuanced pathways within the domain of known or reasonably accessible facts. If information deemed crucial was already within the insurer’s purview or could have been feasibly acquired through due diligence, the insurer lacks grounds to nullify the contract. [7][7]
  1. Materiality of Information

Establishing the importance of providing accurate information is crucial in insurance. Insurers must demonstrate that any false statements or omissions are related to significant facts that affect the risk involved. [8][8] Precedents, such as the Henwood v Prudential Insurance, [1967] SCR 720 case, underscore that insurers are obligated to delineate the alternative paths they would have taken had they been apprised of all pertinent details. [9][9] [10][10] Nevertheless, if the misrepresented or concealed fact is considered insignificant, the insurer might not have the grounds to cancel the insurance policy.

However, within the domain of automobile insurance the Insurance Act delineates an exception. In accordance with the provisions outlined in section 233(1)(a) of the Insurance Act, it is explicitly stated that where ‘an applicant for a contract (i) gives false particulars of the described automobile to be insured to the prejudice of the insurer, or (ii) knowingly misrepresents or fails to disclose in the application any fact required to be stated therein,’ [11][11] […] ‘a claim by the insured is deemed invalid, and the right of the insured to recover indemnity is forfeited’ [12][12]. This exception in automobile insurance indicates that the insurer may have the authority to cancel the insurance policy, irrespective of whether the misrepresented or concealed fact is deemed insignificant.

  1. Fraud or Knowledge of Material Information

Insurers encounter the challenging responsibility of not only identifying misrepresentation or concealment and assessing the significance of undisclosed information, but also proving instances of fraud or knowledge. [13][13] While this circumstance may be rare, the Insurance Act mandates specific situations where insurers are obliged to establish the fraud or knowledge of the insured, profoundly influencing the outcome of the case. [14][14]

  • Life Insurance and Insurance against Accidents and Sickness:

One notable example pertains to life insurance and insurance against accidents and sickness. Section 309(1) of the Insurance Act mandates that after two years from the commencement of the contract, establishing “fraud” becomes obligatory. Therefore, if fraud isn’t proven, then any failure to share important details about the insured person’s health or life won’t cancel the policy after those initial two years. [15][15]

  • Fire Insurance  

Another circumstance arises in cases governed by Part IV of the Insurance Act [16][16], which deals with fire insurance. As exemplified in the case of Taylor v London Assurance, [1935] SCR 422, the insurer will be required to demonstrate the insured’s intent to deceive. [17][17] In this case, the insured, an owner of a logging camp, failed to disclose a nearby fire when securing insurance for his camp. [18][18] Despite this omission, the Supreme Court ruled in favor of the insured, stating that the insurer could not establish their intent to deceive. [19][19]

  • Automobile Insurance

In cases involving automobile insurance contracts, another scenario arises. If the insured knowingly provides inaccurate details regarding the described automobile to the insurer, or knowingly withholds crucial information or misrepresents facts in the application, their claim is invalidated, and they relinquish their entitlement to compensation as outlined in section 233(1). [20][20] Hence, in this circumstance, the insurer must demonstrate that the insured knowingly provided false information.

  • Material Change

A fourth scenario occurs when the circumstances surrounding the risk change. Statutory Condition 4 emphasizes that if there are substantial material changes within the insured’s control and awareness, it can render the contract void. This places the responsibility on the insurer to confirm significant shifts in risk-related circumstances within the insured’s control and awareness. [21][21]

A failure to provide complete information can initiate a cascade of consequences, with the most common being the insurer’s authority to nullify the contract, albeit with the responsibility of reimbursing the premiums received. [22][22] However, this standard outcome is not set in stone; exceptions exist. Contingencies may arise depending on various factors, such as the type of insurance or specific circumstances. [23][23] Additionally, there are instances where the court, exercising its discretion, may deem it unjust to assign full responsibility to the insured party. [24][24]

At Northern Law LLP, we excel in adeptly resolving insurance disputes to the advantage of our clients. Our team of litigation lawyers, renowned for their expertise, possesses extensive experience in handling an array of insurance-related issues. From accident benefits to property loss, fire, water damage, snow load, life insurance, disability claims, and cases involving oil spills and environmental matters, we have the proficiency to navigate complexities effectively. If you require assistance with any of these matters, we encourage you to promptly contact us at (705) 222-0111 or

[1] Insurance Act, RSO 1990, c I.8, s 183(1).

[2] Ibid, s 308(3).

[3] Ontario Metal Products Co. v Mutual Life Ins. Co., [1924] SCR 35 at p 39 [Ontario Metal Products Co].

[4] See especially Lee v Canadian Northern Shield Insurance Co., 2005 BCSC 866 at para 42, where the court found that whether the insured person neglected to disclose their intention to rent out rooms in their house to the insurer accidentally, considered it inconsequential, or intentionally withheld it, was not the primary concern. What mattered was that any crucial information omitted or misrepresented, regardless of the insured person’s honesty or intent, would still constitute a breach.

[5] Cf Bhasin v Hrynew, [2014] 3 SCR 494 at para 73, this pivotal obligation, as underscored in this case, accentuates the imperative of forthrightness and full disclosure regarding material facts within contractual agreements,  extending its relevance to analogous situations within the realm of insurance contracts.

[6] Ouimet Estate v Co-operators Life Insurance Co., 2006 BCSC 841 at para 29.

[7] Canadian Indemnity Co. v Canadian Johns-Manville Co, [1990] 2 SCR 549, 1990 CanLII 78 at paras 68, 104.

[8] Lachman Estate v Norwich Union Life Insurance Co. (Canada), [1998] OJ No 2211, 1998 CarswellOnt 2287 at para 43.

[9] Henwood v Prudential Insurance Co. of America, [1967] SCR 720, 1967 CanLII 17.

[10] Ibid at p 726.

[11] Insurance Actsupra note 1 s 233(1).

[12] Ibid s 233(1).

[13] Ontario Metal Products Co, supra note 3 at p 39.

[14] See e.g. Insurance Act, supra note 1 s 184(2), which implicitly asserts that within two years, in case of nondisclosure or misrepresentation, the insurer holds the authority to nullify the contract without the requirement to establish fraud.

[15] Insurance Act, supra note 1 s 309(1), see also Metcalfe v Manufacturers Life Insurance Co., 2005 BCCA 473 at paras 15-16.

[16] Insurance Act, supra note 1 s 148-143.

[17] Taylor v London Assurance, [1935] SCR 422, 1935 CanLII 2.

[18] Ibid at p 423-424.

[19] Ibid at p 430.

[20] Insurance Act, supra note 1 s 233(1).

[21] Insurance Act, supra s 148(1).

[22]  Insurance Act, supra note 1 s 183(2).

[23] See especially, Insurance Act, supra note 1, s 186(2) and s 312(2) where the misrepresentation of age might only result in adjustments to insured sums.

[24] See generally Blanchette v C.I.S. Ltd., [1973] SCR 833, 1973 CanLII 3, where an insured’s agent misrepresented information on the insurance form for brush-clearing work. The insurer denied the claim after the insured tractor was destroyed by fire. The Supreme Court ruled that the insurer couldn’t rely on the agent’s erroneous answers. They reasoned that the agent had apparent authority to bind the insurer, and it would be unfair to hold the insured accountable due to the lack of opportunity to verify the information.