Negligent misrepresentation does not meet the intent required for civil fraud: Costanza v. Desjardins 2023 ONCA 54

At the end of the day after some interesting analysis of the test for civil fraud, the test for fresh evidence, s.184(2) of the Insurance Act, and the various standards of appeal, the Court of Appeal held that the Application Judge did not err when she found that the Insured did not meet the intent required for civil fraud in not disclosing his criminal conviction on his insurance application.

The Facts:

The insured applied for life insurance on January 9, 2012. He answered “NO” to the question: “In the last 3 years, have you been convicted of or plead guilty to any criminal offence or any moving violations or driving under the influence of alcohol or drugs?”. The court ultimately considered that the insured was convicted on March 11, 2009: 2 years, 11 months and 8 days prior to applying for life insurance.

On December 3, 2017, the insured was found shot to death in his car in front of his house. The face value of the policy was $500,000.00 and the beneficiary was the insured’s minor son.

The insurer took the position that the insured had made a material misrepresentation on the application, as he was convicted of a criminal offence within 3 years of the insurance application and that the policy was therefore voidable under s.184(2) of the Insurance Act.

The policy contained a standard incontestability clause whereby after a life insurance policy has been in effect for more than two years if the insurer seeks to have the policy voided on the basis of material misrepresentation or material non-disclosure, the insurer must prove, on the civil standard of a balance of probabilities, that the misrepresentation or non-disclosure was fraudulent. The test for civil fraud is set out in Derry v. Peek (1889) where the element of intent is described as the representation is made: knowingly, or without a belief in its truth, or recklessly, careless whether it be true or false.

This case made me consider the differences between negligence and recklessness.

Avril Hasselfield, Results Mediators

The Application:

Justice Chozik took issue with the insurer’s positions. She found that the Canadian Police Information Centre (CIPC) print out was a partial police document that was not sufficient or authenticated. It contained the date of March 11, 2009 but she found that it was not clear if it was the date of conviction, imposition or sentence, or some other date which can be well spread out in criminal proceedings. She noted that “the way to verify the date of a conviction is by reference to the official court record entry contained in an Information or Indictment or a court transcript.” Without proper confirmation of a criminal conviction she found that the onus to prove that the answer on the application was false was not discharged by the Insurer.

Justice Chozik also considered, in the alternative, if a misrepresentation had been proven if it would meet the test for civil fraud. At paragraph 25 of her decision she writes: “I find that in these circumstances, I cannot be satisfied on a balance of probabilities that any misrepresentation by Mr. Costanza was done knowingly or recklessly. It is at least as likely (if not more likely) that Mr. Costanza was mistaken or merely negligent as to the date of the conviction when he filled out the application for insurance.”

The insurer also argued that the insured made a material non-disclosure of having a criminal history or background. Justice Chozik was critical of the insurer for relying on two news articles for this assertion and found they were among other things: unreliable, inadmissible, and the most dangerous sort of hearsay as evidence.

The Appeal:

The insurer appealed the judgment seeking a declaration that the life insurance policy was voidable and sought to admit fresh evidence of a certified copy of the Indictment confirming that the insured was convicted of assault causing bodily harm on February 2, 2009, and was sentenced to 90 days imprisonment and an ancillary weapons prohibition on March 11, 2009. February 2, 2009, is 2 years, 11 months and 8 days before the date of the insurance application.

Fresh Evidence:

The four-part test for admissibility of fresh evidence was established in Palmer v. The Queen 1979 CanLII 8 (SCC):

1. The evidence should generally not be admitted if, by due diligence, it could have been adduced at trial;
2. The evidence must be relevant in the sense that it bears upon a decisive or potentially decisive issue in the trial;
3. The evidence must be credible in the sense that it is reasonably capable of belief, and
4. The evidence must be such that, if believed, it could reasonably, when taken with the other evidence adduced at trial, be expected to have the affected result.

The court of appeal stated that although it would appear the motion for fresh evidence should fail “at first blush” on the first count of the test, they noted that the insurer had also relied on admissions made by the insured’s ex-common-law spouse and mother of the minor beneficiary responded, that the insured was convicted of assault causing bodily harm on March 11, 2009 and sentenced to 90 days in prison. The court agreed that the insurer satisfied its due diligence threshold and was entitled to rely on the admissions of the insured’s conviction and there was no failure by the insurer in not obtaining and filing a certified copy of the Indictment. The court held that the application judge made a palpable and overriding error of fact and a more fundamental error of procedural unfairness to the insurer in not considering the admissions. The court clarified that thier finding did not suggest that the CPIC printout was sufficient proof of a conviction and confirmed that the proper method was to obtain a certified copy of the Indictment or Information.

The second and third parts of the test were conceded by the parties.  The court noted that the fourth part of the test was required to affect the result of the decision.  They wrote that “Although the fresh evidence could affect the issue of whether there was a material misrepresentation, it could not reasonably be expected to affect the result of the application, because it could not reasonably be expected to affect the application judge’s finding that the insurer had failed to establish the intent required for civil fraud.”

Grounds of Appeal:

The court agreed that the application judge erred in disregarding the admissions regarding the criminal conviction and that it was “a palpable and overriding error of fact, but it is also a more fundamental error of procedural unfairness to the insurer” without giving the insurer an opportunity to provide further given that she was not prepared to accept the admissions. The court clarified that the application judge was correct in noting that the proper method to prove the existence of a criminal conviction, if it is not admitted, is with a certified copy of the Indictment or Information. 

The court went on to find: “However, as I explain under the next ground, I find that this error had no impact on the result of the decision by the application judge, because she went on to find that, assuming that the deceased had been convicted of assault causing bodily harm on March 11, 2009, the insurer had not satisfied her on a balance of probabilities that the deceased gave that false answer knowingly or recklessly as opposed to by mistake or negligence not rising to the level of recklessness.” 

The court rejected the insurer’s argument that the application judge applied the wrong legal test for civil fraud, saying that it was based entirely on one reference to her use of the words “intent to deceive”, on the basis that it raised a question of law when the standard of review was correctness.  It found that when read as a whole, the application judge’s findings applied the correct legal standard of knowledge of or recklessness as to the falsehood of the representation that she cited throughout her reasons noting that:  “Her assessment of the evidence shows that she was not assessing whether intentional deceit had been proven. Rather, she considered whether the evidence was sufficient to prove on a balance of probabilities either knowledge or recklessness as to the falsehood of the answer, or was at best sufficient to prove negligence or mistake, which would not amount to civil fraud. She found the latter.”

The court was not persuaded that the insurer showed any palpable and overriding error by Justice Chozik when she found that the insured’s misrepresentation was likely a mistake or merely negligent, in the third ground of the appeal.  The court noted that the insurer had the burden of proof to establish that the deceased’s misrepresentations were fraudulent, and the judge’s findings were entitled to deference. 

Regarding the finding of a criminal history and the insurer’s reliance solely on the two news articles, the court found that the insurer was seeking to change the factual basis of its argument and also rely on the CPIC printout and certified copy of the Indictment as fresh evidence, which was not allowed on appeal as new arguments and that fresh evidence is not a vehicle for a party to advance arguments on a fundamentally different basis than raised in the application.     

Take away:

This case made me consider the differences between negligence and recklessness.  I appreciated this distinction made in What is Recklessness?  Legal Definition & Examples: by Christy Beiber, (although not civil case law or Canadian).  A reckless defendant doesn’t just act less carefully than a reasonable person would have under the same circumstances.  A reckless defendant behaves more egregiously, with an added level of dangerous disregard for safety.  I note that neither the Application Judge or the Court of Appeal analysed the difference in their decisions.  Is this a case of the court favouring a minor beneficiary or a reminder of the distinction between negligence and recklessness.