Landmark Supreme Court Decision Opens Door to Sue Banks Selling Creditor Life Insurance

If you’re a frequent visitor to this page, you know that LSM Insurance is not a big fan of creditor life insurance and mortgage life insurance.

Though these policies are meant to cover the remaining balance on your credit card or mortgage in the event of your death, often it’s very difficult for family members to actually receive the payout they are expecting because the banks who sold their loved one  the policy engage in post-claim underwriting.

This is when the policyholder is seemingly automatically approved for the policy and pays the premiums over the course of their lifetime, but then, when they die, they are evaluated to be ineligible for the payout they’ve been paying for all along because of their changing health circumstances at the time of their death, which leaves their family holding the bag when it comes to their remaining mortgage or credit card balance.

When families discover this, they are understandably irate and many try to sue the bank over the lost payout, saying they were never made aware of the post-claim underwriting stipulation by the bank employee who sold them the policy.

“I’ve had lots of potential claims that I’ve seen with respect to credit insurance,” says Harold Geller, a lawyer for the Financial Advisory Services Group at McBride, Bond, Christian LLP in Ottawa. “Every lawyer I know was turning away these sorts of cases, unless there was something that took them outside the norm, because we didn’t think we had a chance of recovery.”

But now, an avenue for legal action may finally be available thanks to a unanimous decision from the Supreme Court of Canada in September 2014 for a case known as Marcotte. The case was seemingly unrelated to insurance issues, as it was a credit card conversion rate class action out of Quebec. The allegation was the members of the class were being harmed because the rate of exchange on foreign currency transactions on credit cards was not being charged in compliance with the Consumer Protection Act of Quebec.

It was in this decision the Supreme Court ruled that those banking issues outside the unassailable core functions of a bank — in this case, credit card rate conversion — were subject to any relevant provincial legislation governing banking activities, and not, The Federal Bank Act, unless other federal legislation already exists for a particular issue.

“This is novel because what other provincial acts would apply to federal institutions?” asks Gellar. “Well, let’s just stick to the banks for a moment. What about the Ontario Consumer Protection Act? What about the Business Practices Act? What about the Insurance Act?”

Since selling insurance is not one of the bank’s core obligations, insurance sold by a bank is subject to provincial legislation, including legislation that says life insurance must be sold on a separate premises from the rest of the bank and the Ontario Insurance Act, which states, sales of insurance must be by a licensed individual and there are certain obligations that go with that licensed individual.

“Now, we can look at the historical sales of credit life and mortgage life insurance and think, ‘that wasn’t compliant was it?’ It was sold in-branch by an unlicensed individual,” reflects Geller.

So, now what can be done? According the Supreme Court of Canada, the bulk of credit and mortgage insurance policies had been sold illegally.

“At law, we look at what the remedies are then. If it’s an illegally sold activity, the policy is voidable — or so it would seem — at the instance of the harmed consumer,” confirms Geller.

“Arguably, this could mean you could cancel your insurance the day before it is due — voiding it — and say, ‘I want my money back.’ If you make a claim and they don’t pay it, then you can say, ‘If someone had explained to me the importance of the medical and lifestyle disclosure form to my claim, then I would’ve taken better care with the questions and if someone had explained the questions to me, I would’ve answered differently on a number of these questions. But because no licensed individual did it, I didn’t know and you can’t refuse to pay the claim for some problem in it because you didn’t sell it right. I’ve been harmed. I could’ve gone to a licensed person and got the right stuff.”

Truly though, no one knows what this ruling by the Supreme Court will mean until a case is brought forward where this ruling can be applied, which is why Geller is currently looking for cases involving the illegal selling of mortgage and credit insurance that may stand up in court.

“It’s probably going to be a person whose claim was denied that’s going to come forward first because often those people are wiped out and have a lot to lose, so we’re very interested in defending those kind of cases,” he says.

So, if you have a case that you believe could be brought on these grounds, or the argument he outlined seems like a situation that happened to you, feel free to contact Harold Geller at or 1 888 460 4474.

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  • Peter Boys
    November 29, 2014 at 5:24 pm

    Hi Chantal,
    This spring I had a farm client pass away and paid out $450,000 to his family, he had loans with 2 local financial firms both “life insured” by them. Both death claims were denied and only the premiums that were paid refunded. Both denied the claims based on undisclosed medical issues. As a member of ADVOVIS, MDRT and a Rotarian so I find the whole creditor insurance situation to be both unethical and unfair to all concerned!
    We all need to report every case that we know where a claim was denied to ADVOCIS and the media.
    Peter Boys

    • LSM Insurance
      November 29, 2014 at 5:52 pm

      I agree with you Peter. Thanks for sharing.