Court of Appeal Removes Time Limit for Insurability Transfers in Canada Life Case
A policyholder in Ontario submitted paperwork to change her life insurance policy. Canada Life Assurance Co. asked for proof of good health. Then nothing happened for months. The policyholder assumed silence meant approval and continued paying premiums. Years later, when she filed a claim, Canada Life denied it, citing the absence of medical evidence it had requested back at the start. The lower court sided with the policyholder, reasoning that insurers cannot leave files open indefinitely. The Ontario Court of Appeal disagreed.
The ruling eliminates what the lower court had tried to impose: an implicit deadline for requesting evidence of insurability. If the policy contract says the insurer can demand proof of health satisfactory to the company, that right persists until the requirement is met or explicitly waived. There is no timer. The contract language governs, not judicial intuition about fairness.
Why insurers can wait (and why that matters)
Most Canadians understand the two-year incontestability rule. After a life insurance policy has been in force for 24 months, the insurer generally cannot void it for misrepresentation unless fraud is involved. That rule, embedded in Ontario's Insurance Act, protects policyholders from indefinite scrutiny once coverage is established.
This case involved a different scenario. The policyholder was not buying a new policy. She was requesting a mid-term change, potentially reinstating lapsed coverage or modifying terms that required fresh underwriting. In those situations, the incontestability clock does not run the same way. The insurer's right to demand medical evidence before finalizing the change remains active until the evidence arrives or the insurer formally closes the file.
The Appeal Court pointed to a contractual principle: an insurer that requests proof of insurability and receives nothing in return has not agreed to the change. Paying premiums during the limbo period does not finalize the modification. The premium payments were accepted under the existing terms, not the requested new ones. If the insured developed a health condition during the delay, that is not the insurer's problem, unless the insurer caused the delay or acted in bad faith.
The administrative trap
Where this ruling becomes harsh is in the gray zone of stalled communication. In Canadian life insurance distribution, there is often a three-way relay: the carrier, the managing general agency (MGA) that processes the paperwork, and the advisor who deals with the client. Files stall because someone assumed someone else was handling the next step. The client believes the change is approved because premiums are being withdrawn. The insurer believes the file is still open because the medical exam never arrived.
Post-pandemic backlogs have worsened this friction. Medical examiners fell behind. Follow-up calls went unanswered. Advisors left firms. By the time the file resurfaced, years had passed. Under this ruling, the insurer's right to enforce the original request for evidence remains intact no matter how much time elapsed, as long as the contract did not specify a deadline.
The court acknowledged the potential for unfairness but refused to override contract terms with a made-up timeline. If Parliament or provincial legislators want insurers bound by a statutory deadline for evidence requests, they can add one to the Insurance Act. Courts will not invent it.
What the ruling means in practice
Good faith obligations still apply. An insurer that deliberately stalls a file to let time erode the insured's health has violated its duty. But proving deliberate delay is different from proving that months passed while the insured failed to schedule an exam.
The practical lesson is blunt: requested evidence does not expire. If you apply for a policy change and the insurer asks for medical underwriting, that request stays live until you complete it or receive written confirmation that the requirement has been waived. Silence is not approval. Premium withdrawals are not proof the change took effect. The only proof is a revised policy document or a formal letter from the carrier stating that the modification is complete.
Advisors now carry a sharper responsibility to confirm, in writing, that every step of a policy alteration has closed. Clients who assume that "no news is good news" are now operating under a framework where no news might mean the file is still technically open, with an outstanding request that can be enforced years later.
A policyholder in Ontario submitted paperwork to change her life insurance policy. Canada Life Assurance Co. asked for proof of good health. Then nothing happened for months. The policyholder assumed silence meant approval and continued paying premiums. Years later, when she filed a claim, Canada Life denied it, citing the absence of medical evidence it had requested back at the start. The lower court sided with the policyholder, reasoning that insurers cannot leave files open indefinitely. The Ontario Court of Appeal disagreed.
The ruling eliminates what the lower court had tried to impose: an implicit deadline for requesting evidence of insurability. If the policy contract says the insurer can demand proof of health satisfactory to the company, that right persists until the requirement is met or explicitly waived. There is no timer. The contract language governs, not judicial intuition about fairness.
Why insurers can wait (and why that matters)
Most Canadians understand the two-year incontestability rule. After a life insurance policy has been in force for 24 months, the insurer generally cannot void it for misrepresentation unless fraud is involved. That rule, embedded in Ontario's Insurance Act, protects policyholders from indefinite scrutiny once coverage is established.
This case involved a different scenario. The policyholder was not buying a new policy. She was requesting a mid-term change, potentially reinstating lapsed coverage or modifying terms that required fresh underwriting. In those situations, the incontestability clock does not run the same way. The insurer's right to demand medical evidence before finalizing the change remains active until the evidence arrives or the insurer formally closes the file.
The Appeal Court pointed to a contractual principle: an insurer that requests proof of insurability and receives nothing in return has not agreed to the change. Paying premiums during the limbo period does not finalize the modification. The premium payments were accepted under the existing terms, not the requested new ones. If the insured developed a health condition during the delay, that is not the insurer's problem, unless the insurer caused the delay or acted in bad faith.
The administrative trap
Where this ruling becomes harsh is in the gray zone of stalled communication. In Canadian life insurance distribution, there is often a three-way relay: the carrier, the managing general agency (MGA) that processes the paperwork, and the advisor who deals with the client. Files stall because someone assumed someone else was handling the next step. The client believes the change is approved because premiums are being withdrawn. The insurer believes the file is still open because the medical exam never arrived.
Post-pandemic backlogs have worsened this friction. Medical examiners fell behind. Follow-up calls went unanswered. Advisors left firms. By the time the file resurfaced, years had passed. Under this ruling, the insurer's right to enforce the original request for evidence remains intact no matter how much time elapsed, as long as the contract did not specify a deadline.
The court acknowledged the potential for unfairness but refused to override contract terms with a made-up timeline. If Parliament or provincial legislators want insurers bound by a statutory deadline for evidence requests, they can add one to the Insurance Act. Courts will not invent it.
What the ruling means in practice
Good faith obligations still apply. An insurer that deliberately stalls a file to let time erode the insured's health has violated its duty. But proving deliberate delay is different from proving that months passed while the insured failed to schedule an exam.
The practical lesson is blunt: requested evidence does not expire. If you apply for a policy change and the insurer asks for medical underwriting, that request stays live until you complete it or receive written confirmation that the requirement has been waived. Silence is not approval. Premium withdrawals are not proof the change took effect. The only proof is a revised policy document or a formal letter from the carrier stating that the modification is complete.
Advisors now carry a sharper responsibility to confirm, in writing, that every step of a policy alteration has closed. Clients who assume that "no news is good news" are now operating under a framework where no news might mean the file is still technically open, with an outstanding request that can be enforced years later.
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