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Toronto Couple’s Lesson: Answer Life Insurance Questionairres Honestly

Updated on Feb 03, 2014

The truth can hurt. A negated life-insurance policy thought to be paid for can hurt much, much worse.

Take a lesson from the reminder that the Ontario Supreme Court dished out to one Toronto couple this past December: life insurance companies don’t like lies. The high court sided with TD Canada Trust in ruling that the late John Foreman’s lie on his 2005 policy application forfeited partner Karen Cheetham’s right to collect the $97,500 payout. Judge Robert Maranger’s initial August 2013 decision also dinged Cheetham for TD Canada Trust’s court costs.

HONESTY: THE BEST POLICY?

Foreman and Cheetham, by all indications, weren’t out to cheat a financial institution. Foreman wanted nothing more than for his seemingly inevitable passing to leave his partner an opportunity to clear their financial slate. He just believed that the whole of his circumstances would rule him out of any worthwhile life insurance in Toronto. The brain cancer that ultimately killed him on Oct. 12, 2007 wasn’t even related to the health issues he’d tried to hide from his insurer.

Specifically, Foreman had received elevated cholesterol and asthma diagnoses within the year prior to the couple’s Nov. 1, 2005 life insurance application. Foreman answered “no” where the application asked whether a doctor had treated him within the previous 24 months for any listed conditions. He also answered “no” where the application asked whether other companies had denied Foreman’s previous life or critical illness insurance policy applications or if his deteriorating health had upped his premiums.

Making matters look even worse, Foreman and Cheetham applied in August 2005 for a home-equity line increase from $36,500 up to $97,500. That increase, approved the following October, would’ve financed their planned home renovations and cleared some outstanding debt. Similarly, their life insurance would’ve wiped out their outstanding credit balances if Foreman died.

The lies traveled full-circle when Foreman’s previous application to Transamerica for a life insurance policy came to light. TD Canada Trust learned that Transamerica had in fact charged him above-normal premiums when they assessed his health.

THREE MONTHS’ DIFFERENCE

Foreman died three weeks before the policy’s 24-month contestability period ended, after which the proceeds would’ve been paid in full. The initial trial when Cheetham sued the bank and represented herself came down to her case that TD Canada Trust banker Ingrid Forrest had told Foreman not to bother confirming his treatment’s timeline when Foreman admitted that he was unsure of the period during which he’d received his treatment versus Forrest’s testimony that she would have advised that Foreman answer “yes” on the side of caution.

Here’s the kicker: had Foreman answered honestly, further evidence from TD Canada Trust claimed, the couple would’ve been denied the policy. Still, they could’ve continued shopping around prior to Foreman’s death. They would’ve surely paid high premiums, but they could’ve possibly had a policy when he passed.

Instead, thanks to Foreman’s misrepresentation, their seemingly locked-in payout is gone. Cheetham has the same debts as before. She unfortunately now also has to answer for TD Canada Trust’s costs of defending their decision against what Maranger deemed misrepresentation – not necessarily fraud – in court.

Chalk this up as an instance in which it wasn’t “easier to ask forgiveness than permission.”

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