BMO Insurance Pays a Claim Without a Premium

bills and papers 7
BMO agreed to pay a policy
without a premium.

We often hear those stories about a beneficiary’s battle with a loved one’s insurance company to pay out a claim. In many cases they end with the insurance company refusing to pay. The following story is one exception.

The world shattered for Thornhill, Ontario’s Cherniavski family on June 10, 2013. The Toronto Star reported that this was the day when their beloved daughter, 28-year-old Biana, went out to walk her dog Harley and never returned. Instead, she was struck and killed by a 2001 Lexus sedan driven by 85-year-old Betty Kestenberg. Harley the dog also died.

The Lexus was traveling north on Thornhill Woods Dr, when it veered off the road and onto the sidewalk at about 8:15 p.m. hitting Biana, a driving instructor. It then continued north over several lawns, hit several trees and knocking out power to the area when it hit a hydro transformer before coming to a stop on a driveway and flipping onto its roof. Kestenberg and her husband were treated for non-life threatening injuries. She was eventually charged with stunt driving and careless driving for going more than 50 Km/h over the speed limit and not wearing a seatbelt.

That winter, the family’s insurance broker, David Shelmov came over and pitched Biana on the idea of buying life insurance. After all, she was young and it would be cheaper for her than it would be for her parents. Mom and dad presented various arguments against it. “You’re young, beautiful and strong,” they would say, “Why do you need these extra expenses?” while trying to convince her to buy insurance plans that covered prescriptions and dental care.

But Biana liked Shelmov’s idea and in early May of that year she asked him to bring over the paper work for the policy they discussed, She filled out the paperwork and sent it off, planning to send in her first premium payment once she received the policy details. In an ironic twist of fate, Shemlov was going to bring over her policy on the day of the accident that took her life. Instead, he spent the rest of the night with the Cherniavski family and called BMO in the morning to explain that though he didn’t have time to deliver the documents and receive the first premium payment, he still believed they should pay the claim and made various strong arguments to that effect.

LSM Insurance contacted Mr. Shelmov hoping for insight into what those arguments were, but he declined to be interviewed, citing any details surrounding the claim as confidential. 

None the less, he presented those arguments to BMO Insurance and was rejected twice. The insurance company reiterated that they had not received a premium payment and the policy would not be in force until June 11 — the day after Biana had died. Still, being the dogged professional that he was, he called BMO Insurance President Peter McCarthy  – who he knew personally — and left him a message. The next day, BMO’s Regional Vice-President Paul Tsourounis called him back and asked how he could help. Shelmov explained the situation and just a short three days later, Tsourounis called back with good news — President Peter McCarthy had approved the claim.

“We’re not going to delve into who’s right and who’s wrong. We simply have to make the right decision to resolve this tragic and extraordinary situation,” he reportedly said.

Whatever the reason, exactly a year later, after BMO had done their OHIP investigation as to Biana’s health status, the Cherniavski family received that hard won cheque directly from Mr. Shelmov. Nothing will bring Biana back to her parents, but the money from the insurance company certainly helped them move on with life.

As much as BMO Insurance did the absolute right thing for this family, the Cherniavski’s story does raise some important questions for the life insurance industry in Canada and the many policyholders there are across this country. 

LSM Insurance did their research and we couldn’t find any other instance of a claim being paid out without a premium being paid.

“Anytime claims are paid it adds to the effect of increased premiums for future policyowners. It was nice of BMO Insurance to do, but it was at the expense of future premium payers, not BMO’s bottom line,” points out our own Syed Raza.

“Technically, the premium was not paid and the death occurred before the issue date. So, according to contract law, the claim should not have been paid.”

Plus, as much as David Shelmov did the right thing for his client and did not give up, even when told “No,” the claim went through more because of who he knew than what he knew and one wonders if the family would have got the same treatment had they just purchased the insurance through a call centre?

All of this is food for thought, what do you think? Feel free to comment below.

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  • Ami Maishlish
    February 7, 2015 at 9:00 pm

    Richard, There is no contention that it is beneficial for all involved (consumer, broker, and insurer) if a Temporary Insurance Agreement (TIA) is applied for and issued at time of application for insurance; however, that matter remains irrelevant within the constraint and context of this story. As you should know, the TIA is conditional upon its wording and pre-requisites, and particularly on whether the insurance company would have deemed the risk acceptable. In other words, if the life insurance company would wish to contest a death claim presented on the basis of a TIA, they could do so.

    You could argue that the contestability period does not begin until the day of delivery of the policy and collection of premium; however, the wording of the TIA (as it appears overall) addresses that matter.

    Further, as noted in the story, there are factors and information that are confidential but that were material to and/or had bearing on the decision made by BMO to honor the claim. While the confidentiality-constrained information in the story may mislead some to think that this case could set precedence for future claims, I highly doubt that if all the confidentiality-withheld information was revealed any precedence as such would be set. As noted in my earlier, I believe that Canadian life insurance companies operating in Canada strive to pay all legitimate death claims fairly and expeditiously. It is most likely that the confidential information that was excluded from the story was sufficient to indicate to BMO that they should honor the claim rather than sting and string the beneficiaries through the agony and needless stress of wasteful litigation. This can be gleaned from the story itself, and in particular in the text:

    “he (the broker, David Shelmov) presented those arguments to BMO Insurance and was rejected twice. The insurance company reiterated that they had not received a premium payment and the policy would not be in force until June 11
    — the day after Biana had died. Still, being the dogged professional that he was, he called BMO Insurance President Peter McCarthy — who he knew personally — and left him a message. The next day, BMO’s Regional Vice-
    President Paul Tsourounis called him back and asked how he could help. Shelmov explained the situation and just a short three days later, Tsourounis called back with good news — President Peter McCarthy had approved the claim.”

    I have no doubt that the legal eagles at BMO insurance examined the information and argument carefully in context of the facts, the law and concerns, including concerns that you, Richard and Syed, both raised. Once the conclusion was arrived at that the claim should be paid, as the story suggests, BMO proceeded to honor the claim expeditiously and fairly.

    The broker’s tenacity and commitment to his clients, obviously, escalated the matter to closer and more detailed examination (most likely inclusive of confidential facts and information that are not discussed in the story).

    Though limited in detail, the story illustrates that:
    a. There is substantial added value for consumers to transact life insurance purchases through knowledgeable, properly research equipped, consumer interest focused life insurance brokers.
    b. While the commercial media relies and thrives on sensationalism and sensationalist stories to generate the “3-Rs” (readership, ratings and revenue)…and thereby creates the misimpression that life insurers operating in Canada seek to ‘weasel out’ of paying legitimate life insurance claims on individual life insurance policies, the opposite – that they strive to pay legitimate claims fairly and expeditiously – is the case.

    The Toronto Star, June 11 2013, carried the usual type of story that one should expect from commercial media chasing the “3-Rs” (see http://www.thestar.com/news/gta/2013/06/11/woman_dog_dead_after_being_hit_by_car_in_vaughan.html) As it appears to me, the element that changed the story in this case from a potential sensationalist emotion-driven negative sequel in the commercial media to a positive story lacking sensationalism (but ignored by the commercial media) was the broker’s tenacious commitment to his clients along with a commitment by the insurer to honor its obligations as fairly and expeditiously as possible.

  • Richard Proteau
    February 6, 2015 at 9:40 am

    Ami, I am in full disagreement with you. First it is important to understand that the beneficiary received a benefit they were not supposed to receive. Why BMO did this for them and not for others? If clients become aware of this story they will believe that there is no need for Temporary insurance since BMO will pay the death benefit if they die before payment of premium. It also give the impression to other advisors that BMO will pay a death benefit if a premium is not paid, so truly these advisors don’t have to put too much energy in convincing clients to take the Temporary insurance. BMO decision is totally arbitrary and is not fair to other beneficiaries and advisors…

    Temporary insurance is irrelevant? I can’t believe when I read this. Advisors have a duty to present this option. It is part of the application. It must be presented and explained. Any advisors failing to do so would be committing a regulatory infraction.

    Financing rate on monthly premium is a different discussion. Taking an initial premium at time of the application at least protect the client between the time policy is issued and delivered. It’s not as good as temporary insurance which protect the client between the time the app is taken and the policy is issued.
    Tge insurance contract can be reviewed at time of the application through a specimen contract. Why then not include a premium with the app. When the policy is issued and delivered then the client has 10 days to review any endorsement, attached application to ensure nothing is wrong… But at least they are insured during this time.

  • Ami Maishlish
    February 5, 2015 at 1:13 am

    Richard, relating to your points in your comment of 02/03/2015 at 5:55 pm:

    1. Whether the insured was given the a TIA (Temporary Insurance Agreement) slip is irrelevant to the story as a whole since the TIA, in its wording (normally) is conditional to the payment of premiums AND also conditional to the policy wording, and also on the acceptance of the risk by the insurance company.
    2. The “void” cheque and PAC assumes that the insured was talked into financing the premium to be paid in monthly installments (For BMO as for nearly all other insurers, the current effective financing rate is 18.594%)! IMO, even if monthly financing at the current 18.594% rate was opted for, the completion of the PAC and provision of the “void” cheque would remain irrelevant on their own for determination of the initiation of coverage.
    3. You stated:
    “The story said that this was because the client wanted to review policy. This is wrong. This is why we have a 10 days provision on a life contract for a client to change his mind.”

    An insurance policy is a contractual agreement between the insurer (the insurance company who normally authors the contractual agreement) and the policy-purchaser. The point in time for the offeror (the insurance company) to disclose the content and wording of the contract being offered to the offeree (the purchaser, the consumer) should be at the time that the offer is made and prior to the point at which the consumer is asked to accept the contract. I ask you, Richard: Would you accept an offer to purchase a home from a builder or home seller, and pay for the house or apartment without an opportunity to see and read the contract? Ditto for a mortgage, employment or other contract? What is the sense or justification to withhold disclosure of the life insurance contract wording to the consumer until subsequent to the purchase? …and why only the negative option of the “10-day” window for the consumer to change her/his mind instead of full disclosure up front? If there is no problem for the seller to distribute fancy brochures, computer-generated quotations and illustrations and the like, what good reason is there not to disclose the wording of the contract being offered at the same time?

    IMO, the consumer should be provided with at least a specimen copy of the proposed insurance contract wording at the time that the contract is offered, and then reviewed carefully again when delivered, with a reasonable time-window for that second review (one of the reasons being that the application form, as completed, etc. becomes part of the contract, another reason may be possible subsequent amendments to the price, terms, conditions, exclusions)

  • Ami Maishlish
    February 5, 2015 at 12:13 am

    It is just proper to commence this response by praising David Shelmov for his exemplary professionalism and efforts on behalf of his clients. BMO insurance, and particularly its President’s good judgement, also deserve accolades for their logic, good business sense, and fair treatment of the beneficiary.

    Mr. Shelmov also deserves to be recognized for the professionalism that he displayed in his good judgement to decline to disclose potentially private and confidential information about his client for the article. Such private information, IMO, would not have added to the substance nor the message of the article – an article that is quite sufficient and clear with the public information and without prying into the individuals’ private domain.

    From a purely technical perspective, I concur with both of LSM’s Syed Raza’s observations and comments – with the exception of the part “but it was at the expense of future premium payers.”:
    -From a technical perspective one could argue that there was no contract in existence since the fundamental requirement of “consideration” (for insurance contracts, the “premium”) was not paid by the purchaser of the coverage prior to the event that gave rise to the claim. On the other hand, it is a fairly common practice in insurance transactions, and particularly for P&C insurance, to be bound (the risk being transferred from the insured to the insurer) before the premium is paid. An example of this would be the binding of automobile or property insurance coverage over the phone, bringing the insurance contract into force with the “consideration” essentially being a verbal “promisory note” to pay the premium.
    -I agree with Syed Reza’s logical observation relating to the significance of claims costs in the pricing of insurance offerings. However, and on the other hand, such costs as marketing and advertising are not to be ignored. In my experience, and in general, Canadian life insurance companies operating in Canada strive to pay legitimate claims fairly and expeditiously. This makes perfect sense also from a purely business perspective. Advertising and the building of a good and trusted image – call it “good will” – is expensive to build, costing insurance companies hundreds of thousands and perhaps millions of dollars. What better advertising to effectively build a good and trusted image could there be to exceed the value of a positive article such as this?
    -Further and relating to the segment in Mr’ Raza’s comment with which I disagree (see above), the costing for the risk assumption component of insurance premiums is largely based on actuarial calculations of probabilities. Meaningful stats cannot be based on a single incident such as in this case. The event that gave rise to the claim described in the article does not indicate or even suggest increased probability of mortality for 28 year old females in good health.

    I should also note and reiterate that, based on my experience of over 40 years with the life insurance sector in Canada, Canadian life insurance companies operating in Canada generally strive to pay legitimate claims fairly and expeditiously. Yes, there are exceptions as there are to any rule; however, the exceptions are exceptions, and not the rule. I extend a friendly challenge to the writer of the article to substantiate the statement at the beginning of the article, “Nine out of ten times, no matter the circumstances, they end with the insurance company refusing to pay.” As much as I searched for some statistical basis to substantiate that comment, I found none. On the other hand, there is no question in my mind about the veracity of the opening sentence of the article “We often hear those stories about a beneficiary’s battle with a loved one’s insurance company to pay out a claim”. We need to understand that the commercial media thrives on sensationalism, often creating a false image of reality. Good news stories such as this are rarely initiated by the commercial media as they lack the anger and negative emotions elicited by sensationalist reporting.

    To conclude, I’d like to say Kudos to David Shelmov for his professional and caring conduct and carriage of the claim, to BMO and its President for deciding wisely from a business perspective and in fairness to the insured, and to folks at LMS insurance for publishing this story.

    Ami Maishlish
    [Note and disclaimer: The opinions expressed herein are my personal perspective as a consumer, advocating for consumers. None of my above comments should be taken, perceived or understood as advice or recommendation in any form for or against any decision or action. I have to note, however, that the article added to my confidence in BMO insurance and in the professionalism of truly independent life insurance advisors]

    • syed
      February 6, 2015 at 3:31 pm

      Great points Richard and Ami, thanks to both of you for your valuable input. Its obvious that one payout is not going to immediately trigger higher mortality rates but its the fact that this case could now set precedence for future claims that is troublesome.

      Interesting point Ami, on the insurance company possibly chalking this one up to ‘advertising/marketing’ costs but doesn’t that just sully BMO’s intention behind paying the claim?

  • Richard Proteau
    February 3, 2015 at 5:55 pm

    Some puzzling information is missing. Was the client presented the temporary insurance? Also, in submitting the app there should have been 1 month premium + void cheque/PAC info. This means that the policy would have been issued on acceptance of the risk by insurer. It would just not have been delivered. The story said that this was because the client wanted to review policy. This is wrong. This is why we have a 10 days provision on a life contract for a client to change his mind. I really don’t see why the first month premium was not included…Did the agent explains this to the client.

    • LSM Insurance
      February 4, 2015 at 1:51 pm

      Hi Richard,

      Thanks for the comment. We reached out to the insurance broker who declined to be interviewed and told us that Biana’s family would like to do the same, so we didn’t get a chance to ask them about the particulars you’re asking about. The information we do have comes from an open letter written by Biana’s family and published in a York Media Group publication.It says in that article that Biana filled out the documents and decided to make the first payment after she received approval for her policy, after which she was scheduled for a medical examination.

      Since this source article was written from the family’s perspective, all we know is that’s what they understood about the sequence of events. Only the broker could clarify and he declined to be interviewed.

      If you like, we could insert your point of view into the article itself, so that it’s at least raised as an issue.

      Thanks