



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



Khosah v. Canada Life Assurance Company,









2013 BCCA 25




Date: 20130111

Docket: CA039442

Between:

Surinderjeet
Khosah

Appellant

(Plaintiff)

And

The Canada Life
Insurance Company and in French,

La Compagnie DAssurance
du Canada Sur La Vie

Respondent

(Defendant)




Before:



The Honourable Mr. Justice Low





The Honourable Madam Justice D. Smith





The Honourable Madam Justice A. MacKenzie




On appeal from: Supreme
Court of British Columbia, September 29, 2011
(
Khosah v. Canada Life Assurance Company
, Vancouver Registry No.
S083168)

Oral Reasons for Judgment




Counsel for the Appellant:



G.J. Collette and
  N.W. Peterson





Counsel for the Respondent:



E.B. Lyall, Q.C. and
  T.J. Gilmor





Place and Date of Hearing:



Vancouver, British
  Columbia

January 11, 2013





Place and Date of Judgment:



Vancouver, British
  Columbia

January 11, 2013








[1]

A. MACKENZIE J.A.
:  The issue on this appeal is whether the
appellants deceased husband, Mr. Khosah, obtained temporary insurance
coverage from the respondent, the Canada Life Assurance Company (Canada
Life), while it processed Mr. Khosahs application for reinstatement of a
term life insurance policy that had lapsed due to non-payment of premiums.

[2]

Canada Life denied
Mr. Khosahs application for reinstatement of his life insurance policy. However,
Mr. Khosah died shortly before Canada Life informed Ms. Khosah of
this decision and Canada Life refused Ms. Khosahs claim for the proceeds
of the lapsed policy. Ms. Khosah then sued Canada Life, arguing that she
was entitled to benefit under a policy of temporary life insurance and seeking
an order that the proceeds be paid to her. In an oral decision after a summary
trial, Mr. Justice Sewell dismissed her action:
Khosah v. Canada Life
Assurance Company
(29 September 2011), Vancouver S083168 (B.C.S.C.).

[3]

Ms. Khosah appeals
essentially on the ground the trial judge erred in his identification and
application of principles of contract law as applied to contracts of insurance.

[4]

For the reasons below, I would
dismiss the appeal on the basis there was no offer and acceptance as required
to create a contract for temporary insurance.

Background

[5]

In March 2003, Mr. Khosah
applied to Canada Life for term life insurance. His insurance broker, Jaswinder
Singh Parmar, assisted him with this application. Mr. Khosah did not apply
for temporary insurance at that time. The judge noted Mr. Parmar did not
suggest Mr. Khosah apply for temporary insurance because Mr. Khosah
was dealing with other insurers and would not have wanted to pay the one
months premium in advance in order to obtain temporary insurance.

[6]

In April 2003, Canada Life issued
a life insurance policy to Mr. Khosah for $1,000,000 (the Policy), under
which Ms. Khosah was a beneficiary. The monthly premiums of $146.70 were
automatically debited from Mr. Khosahs business bank account pursuant to
a preauthorized payment plan with Canada Life.

[7]

In June 2005, without informing
Mr. Khosah, Mr. Khosahs business partner cancelled the preauthorized
payment plan while Mr. Khosah was on a prolonged trip to India. In a
letter dated July 7, 2005, Canada Life informed Mr. Khosah his bank had
returned his preauthorized payment for June 29, 2005. Canada Life requested a
replacement cheque by July 30, 2005. As Mr. Khosah was out of the country,
he did not receive this letter, did not send a replacement premium to Canada
Life, and the Policy lapsed.

[8]

The Policy provided the following
with respect to reinstatement:

If this policy has lapsed, you
may apply to reinstate it within three years after the first unpaid premium was
due, provided application is made before the Final Expiry Date [April 29, 2048]
of the policy.

To reinstate this policy you
will have to:

(1)        Provide
us with a reinstatement application and proof, satisfactory to us, of the life
insureds continued insurability on the same Health and Rate Class basis in
effect for this policy on the date of lapse.

(2)        Pay
all overdue premiums together with compound interest at an appropriate rate
then set by us.

The reinstated policy will
come into force at the date on which we have approved the application for
reinstatement and all of the preceding terms of this provision have been
satisfied.

[9]

On August 4, 2005, Canada Life
sent a notice of lapse to Mr. Khosah, notifying him that the Policy had
lapsed. It advised that if payment of $586 was received by August 22, 2005,
Canada Life would reinstate the Policy without evidence of insurability. The
notice of lapse also informed Mr. Khosah of the option of paying $1,357.59
to keep the Policy in force until its next anniversary date, rather than making
payments on a monthly basis. Canada Life did not receive any payments by August
22, 2005.

[10]

When Mr. Khosah returned from
India and learned of the lapsed Policy, his wife provided Mr. Parmar with
a new preauthorized payment form and a cheque payable to Canada Life for
$1,941.59. The parties agree this was likely intended to be the sum of the two
payment amounts set out in the notice of lapse, with a discrepancy of $2. This
total amount was substantially greater than what Mr. Khosah owed Canada
Life for the outstanding arrears.

[11]

On October 18, 2005, Canada Life
received the cheque and put the funds into a suspense account. However, it
did not inform Mr. Khosah or Ms. Khosah it was simply holding the
funds, rather than applying them to Mr. Khosahs debt.

[12]

The judge found that Canada Life
treated the receipt of the cheque and the preauthorized payment form as a
request to reinstate the lapsed Policy. On October 26, 2005, Canada Life sent
Mr. Khosah a letter enclosing a contract change form entitled Individual
Life Insurance Application for Policy Change (the Application). The judge
described the Application as an omnibus form designed to be used to cover a
variety of changes to an account, including reinstatement of a policy. The
instructions in the Application specify which sections of the Application the
applicant is required to complete for different types of policy changes. With
respect to reinstatement of a policy lapsed between 54 days and 6 months, the
instructions direct the applicant to complete sections 1 (1.1, 1.2, 1.3), 2
(2.1), 6, 12 and 13. While some policy changes require the applicant to fill
out the Temporary Insurance Agreement section (the TIA), this is not required
for an application for reinstatement.

[13]

Canada Lifes letter to
Mr. Khosah instructed him to complete sections 1, 2, 6, 7, 11 and 12 of
the Application. Section 7.11 sets out the conditions to qualify for temporary
insurance and states that temporary insurance is not applicable to a group
conversion, to the exercise of guaranteed insurability options, if the total
underwriting risk is $5,000,000 or greater, or if the actual age of the proposed
insured is 71 or over. It then contains three health questions and states
temporary insurance is not available if the applicant answers yes to any of
the questions. Section 7.11 also asks the applicant to refer to the Date
coverage begins section of the TIA for the conditions that must be met for
temporary insurance coverage to come into effect. Among other conditions, the
TIA provides that coverage is not in effect until payment of the first monthly
premium has been received. Finally, section 7.11 states, Always complete the
Temporary
insurance agreement
and give it to the owner.

[14]

Mr. Khosah, with the
assistance of Mr. Parmar, filled out what he thought to be the
relevant sections of the Application, including section 7, and returned
the Application to Canada Life. He did not forward any further payment to
Canada Life.

[15]

In January 2006, Mr. Khosah
forwarded the necessary medical documentation for the reinstatement
application. Canada Life processed the application and on February 8, 2006,
decided to deny reinstatement. Canada Life informed Mr. Khosah of its
decision by a letter sent to him on February 16, 2006; unfortunately,
Mr. Khosah had died on February 13, 2006.

[16]

Ms. Khosah brought a claim
against Canada Life, arguing Mr. Khosah was covered by a temporary
insurance policy of $1,000,000 and seeking an order that it be paid to her. The
parties proceeded by way of summary trial.

Judgment at Trial

[17]

The sole issue at trial was
whether Mr. Khosah was insured under a temporary insurance agreement.

[18]

The judge found the critical
question was one of contract formation, rather than the interpretation of an
existing contract. Specifically, the issue was whether Mr. Khosah had
entered into a contract with Canada Life for temporary insurance.

[19]

The judge noted the creation of a
contract requires offer and acceptance and whether there has been offer and
acceptance must be determined objectively. He concluded there was no offer or
acceptance in this case.

[20]

The judge first explained what
would constitute offer and acceptance of a temporary insurance agreement:

[39]      In my view, the
plaintiff has established neither offer nor acceptance in this case. I do note
that there is one unique characteristic of a temporary insurance agreement that
distinguishes it from the other types of insurance contemplated in the
Application. It seems quite clear that a temporary insurance agreement would
come into existence upon compliance with the requirements of the temporary
insurance agreement section of the Application by a person who qualified for
temporary insurance. One such requirement was that the person answered no to
the three questions posed in section 7 of the Application.

[40]      Therefore the
Application, in my view, constitutes an offer by Canada Life to provide
temporary insurance to qualified persons. The completion of the Application,
including the temporary insurance agreement section, and compliance with the
other conditions to obtain temporary insurance by a qualified applicant would
have constituted acceptance of that offer.

[21]

The judge found that while the
Application constitutes an offer to provide temporary insurance to qualified
persons, it did not constitute an offer of temporary insurance to
Mr. Khosah because he was applying for reinstatement of a lapsed policy
and the Applications instructions do not contemplate completion of the TIA
section on such an application.

[22]

The judge also noted that the
October 26, 2005, letter from Canada Life to Mr. Khosah directed
Mr. Khosah to complete section 7 of the Application and, read alone,
section 7.11 seems to suggest the only condition to the creation of a temporary
insurance agreement is a negative answer to the three health questions
contained in that section. However, the judge found that because section 7.11
is phrased in the negative, it sets out the circumstances in which temporary
insurance is not available; it does not make an offer to provide temporary
insurance. Further, the judge noted section 7.11 directs the insurance broker
to complete the TIA and provide it to the owner, indicating something more than
answering no to the three health questions is required to qualify for
temporary insurance.

[23]

In the event he was wrong that
Canada Life made no offer of temporary insurance to Mr. Khosah, the judge
considered whether Mr. Khosah accepted any offer of temporary insurance.
He concluded there was no acceptance in this case because Mr. Khosah did
not fill out the TIA section of the Application and he did not pay the required
first monthly premium of the policy for which he was applying. Although
Ms. Khosah sent $1,941.59 to Canada Life in October 2005, the judge found
there was no evidence that this payment was intended to be made, or later
designated, as payment of the first monthly premium.

[24]

Finally, the judge found
Mr. Khosah did not have a reasonable expectation that he was covered by
$1,000,000 in temporary life insurance as there was no evidence Mr. Khosah
ever intended to obtain temporary insurance. He did not complete the TIA
section of the Application and did not indicate his earlier payment of arrears
was meant to constitute the payment of the premium required to obtain temporary
insurance.

[25]

The judge referred to
Elite
Builders Ltd. v. Maritime Life Assurance Co
., [1986] 3 W.W.R. 32, 68
B.C.L.R. 273 (C.A.), leave to appeal refd, [1986] 1 S.C.R. viii, citing
Smith
v. Westland Life Ins. Co.
, 539 P.2d 433, 123 Cal. Rptr. 649 (S.C. 1975). In
Smith
, the California Supreme Court held that a person has a reasonable
expectation of temporary insurance if he or she pays the premium at the time he
or she applies for insurance and receives a receipt in return which states the
coverage is to be effective as of the date of the application. The judge
distinguished
Smith
from the present case on the basis there was no
evidence Canada Life requested that Mr. Khosah pay any premium in
connection with the Application and did not issue a receipt.

[26]

As there was no insurance
agreement in place, the judge dismissed Ms. Khosahs claim under a policy
for temporary insurance.

Issues on Appeal

[27]

Ms. Khosah alleges the trial
judge erred:

(1)        in finding that the
fundamental issue in this case concerns a question of offer and acceptance and
not interpretation of a binding agreement;

(2)        in failing to apply
the correct principles of interpretation applicable to contracts of insurance;

(3)        in his formulation
and application of the doctrine of reasonable expectations; and

(4)        in his
identification and application of the principles governing offer and
acceptance.

Ms. Khosah seeks judgment for $1,000,000 and
prejudgment interest.

Discussion

[28]

Ms. Khosahs first and fourth
grounds of appeal relate to the judges conclusion that no temporary insurance
agreement came into existence, so I will address those grounds together.

Did the judge err in finding
there was no offer and acceptance?

[29]

Ms. Khosah first submits the
critical issue in this case involves contractual interpretation, not contract
formation, as a contract between the parties clearly existed. Thus, she says
the judge erred in applying principles of contract formation, rather than
principles of contractual interpretation in the context of insurance contracts.

[30]

Ms. Khosah advances three
arguments in support of this position: 1) the parties were in a
continuing contractual relationship under the original Policy and
Mr. Khosah was simply executing a contractual right under the Policy in
completing and signing the Application; 2) under the Policy, a
reinstatement application is part of the contract between the parties; and
3) even if the Application could be viewed as an offer to enter into a new
and separate contract from the original Policy, Canada Lifes sending of the
Application to Mr. Khosah and Mr. Khosahs completion and signing of
the Application constituted a binding agreement between the parties.

[31]

I agree with Canada Life that coverage
under the original Policy, and any accompanying obligations, terminated in
accordance with its own terms because Mr. Khosah failed to pay outstanding
premiums within the grace period. The relevant clause in the Policy states:

If you do not pay a premium on
or before its due date, we will keep your policy in force for thirty-one days
beyond that date. This is the grace period. If you do not pay the premium by
the end of the grace period, your policy lapses and all insurance coverage
terminates.

[32]

As coverage was terminated, the
judge properly considered whether a new contract of temporary insurance came
into existence: see
Paul v. CUMIS Life Insurance Company,
2012 BCCA 35
at paras. 11, 17, 29 B.C.L.R. (5th) 225.

[33]

Ms. Khosahs alternative
submission is that if the judge did not err in proceeding under a contract
formation analysis, a valid offer and acceptance were made out. She argues the
rules of contract construction apply to the issue of contract formation and
thus, if an offer is ambiguous, the ambiguity should be resolved against the
party who made the offer. Applying this principle, Ms. Khosah says Canada
Lifes letter of October 26, 2005, and the accompanying Application constituted
an offer for temporary insurance.

[34]

Ms. Khosah further submits
Mr. Khosah unequivocally accepted the offer for temporary insurance when
he signed the Application and returned it to Canada Life.

[35]

In my view, basic principles of
contract formation dispose of this argument. The critical features of a
contract of insurance, as with any contract, are an offer and an acceptance. In
Redfern Resources Ltd. (Re)
, 2012 BCCA 189, 32 B.C.L.R. (5th) 303, this
Court adopted this summary of the principles governing the formation of a
contract:

[72]      The creation of a
contractual relationship is described by G.H.L. Fridman in
The Law of
Contract in Canada,
6th ed. (Toronto: Carswell, 2011) at 25 as follows:

the
common law requires a clear manifestation of agreement. The mechanism of that
agreement is contained in the notions of offer and acceptance. Without an offer
and its acceptance, there is no contract. If either or both is missing, there
is no proof that the parties were ever
ad idem
, that is, had reached a
stage in their negotiations in respect of which it could be said that they had
shown not only an intent to be bound together, but the nature, extent, and
manner of their being bound so as to give rise to a legally recognizable and
enforceable contract. The parties will not be bound
unless
they intend
to be bound, nor will they be bound
until
they intend to be bound. Their
intentions in these respects are indicated by the features of offer and
acceptance.

[Footnotes omitted; emphasis in original.]

Canada Life is correct that the evidence does not
support a finding that a reasonable person in Mr. Khosahs position would
have understood he had been offered a contract for temporary insurance. As
Canada Life points out, there was no evidence to suggest Mr. Khosah
believed he qualified for temporary insurance, Canada Lifes letter to
Mr. Khosah did not mention temporary insurance, the instruction section of
the Application does not instruct applicants for reinstatement to complete the
TIA, and Mr. Khosah and Mr. Parmar never discussed temporary
insurance.

[36]

As Canada Life also says, the
judge correctly noted that s. 7.11 is not, on its own, an offer of temporary
insurance as it refers to the TIA for other conditions to be met before
temporary insurance coverage can come into effect, including payment of a
premium, and it directs the insurance broker to sign the TIA and provide it to
the owner. Thus, merely answering no to the three health questions in section
7.11 is not enough for an applicant to qualify for temporary life insurance.
Canada Lifes receipt of the earlier cheque from Ms. Khosah did not give
rise to an offer of temporary insurance as that cheque was intended to cover
payments required to reinstate the lapsed Policy. With respect to s. 11, the
application was not accompanied by any premium payment as required. Mr.
Khosahs earlier payment was not clearly designated to satisfy the requirement
for temporary insurance.

[37]

With respect to acceptance, in my
view, the judge also correctly concluded there was no unequivocal acceptance as
Mr. Khosah did not complete the TIA and no premium was paid. As Canada Life
says, the cheque forwarded by Mr. Khosah in October 2005 was sent for the
purpose of paying the amount required to reinstate the policy; there was no
evidence to suggest it was intended to represent a premium for temporary
insurance.

[38]

I agree with Canada Life that the
result is the same if the completed Application is viewed as an offer by
Mr. Khosah to purchase insurance. Canada Life correctly submits it cannot
be interpreted as an offer to purchase
temporary
insurance as
Mr. Khosah did not request temporary insurance and did not pay the
required premium. Nor did Canada Life accept any offer to purchase temporary
insurance as the TIA was not completed or provided to Mr. Khosah and
Canada Life did not give Mr. Khosah a receipt.

[39]

Ms. Khosah relies on the principle
of
contra proferentem,
but it

is not relevant here because there
is no ambiguity that cannot be resolved by the application of basic principles
of contract law. Without ambiguity,
contra proferentem
does not apply:
Progressive
Homes Ltd. v. Lombard General Insurance Co. of Canada,
2010 SCC 33, [2010]
2 S.C.R. 245 at para. 24.

[40]

I would conclude the trial judge
did not err in finding no offer and acceptance as required to create a contract
of temporary insurance. In my view, his conclusion is well supported by the law
of contract as applied to the evidence before him. The Application was simply a
request to reinstate the expired Policy which Canada Life declined for medical
reasons.

[41]

I would agree with Canada Life
that Ms. Khosahs case is essentially founded upon Mr. Parmars
mistake in filling out three boxes in s. 7.11 of the Application. It is also
based on Canada Lifes October 26, 2005 letter which mistakenly requested
completion of s. 7. However, as the judge pointed out, s. 7 is not the TIA (para.
46). The cover letter did not instruct Mr. Khosah to complete the TIA section,
and did not ask for a premium for temporary insurance
.
A temporary
insurance agreement was never requested, offered, accepted, paid for, completed
or delivered. Thus, the trial judge correctly dismissed Ms. Khosahs
action.

[42]

For the reasons above, I find it
unnecessary to address the other grounds of appeal. In particular, I would
observe that the doctrine of reasonable expectations, on which Ms. Khosah
also relies, has no application in the absence of an insurance contract:
Elite
Builders Ltd. v. Maritime Life Assurance Co.
at 280.

[43]

It follows that I would dismiss
Ms. Khosahs appeal.

[44]

LOW J.A.
: I agree.

[45]

D. SMITH J.A.
: I agree.

[46]

LOW J.A.
: The appeal is dismissed.

The
Honourable Madam Justice MacKenzie


