Reconciling Inconsistent Policy Documents through Rectification
The recent Court of Appeal decision in Alguire v. Manulife provides a helpful primer (and reminder) on the law of rectification, an equitable remedy not often invoked in insurance related litigation. This case involved a GRIP life insurance policy issued by Manulife to the plaintiff in 1982. The face amount of the coverage was $5,000,000. The policy required large premiums payable up front and reduced premiums payable over time and included a guaranteed paid up value that would ensure a pre-determined coverage amount that was guaranteed even in the event of a default by the insured in paying premiums. The guaranteed amount was memorialized in a table of non-forfeiture values that would increase over time. The approved quote for the policy agreed to by the parties included the non-forfeiture table that was based on each $5,000 of the face amount of the coverage. However when the policy was issued the non-forfeiture table was presented based on each $1,000 of the face amount of the coverage. The result was that the paid up value was always 5 times greater than what it was supposed to be and eventually exceeded the face value of the policy by a factor of almost 3. At the time of trial, despite a policy with a face value of $5,000,000 the paid up value which was guaranteed was $13,400,000 instead of $2,680,000. The plaintiff sought a ruling that affirmed the higher paid up value.
The plaintiff attempted to justify his position by testifying that he had specifically requested a policy that would provide ‘inflation protection’. He testified that he reviewed the non-forfeiture table with the (now deceased) broker who expressly represented to him that the non-forfeiture value would eventually exceed the face value of the policy.
At trial, the court held that the parties contracted for a policy with a maximum value of $5,000,000 and the inclusion of the non-forfeiture table that showed a higher amount was clearly an error. As a result the court exercised its discretion to rectify the contract so that is accurately reflected the agreement reached between the parties. The Court of Appeal agreed noting that in order to rectify the contract Manulife was required to lead evidence to establish that the parties had reached a ‘prior agreement whose terms are definite and ascertainable’.
The court was satisfied that it had done so. The court ultimately considered the notion that a policy with non-forfeiture values that exceeded the face value of the policy to be nonsensical. In addition the non-forfeiture tables had no inflation related pattern which undermined the plaintiff’s position that he had bargained for inflation protection.
