Depending on the specific terms of an insurance contract, under certain conditions, an insurer may adjust a death benefit under a life insurance policy, or deny payment altogether.

For example, if an insured person commits suicide within two years after the day the policy or coverage is issued or last reinstated, whether or not the person was sane when he or she committed suicide, the insurer will usually not pay the death benefit in full, but rather, will pay a reduced death benefit to the beneficiary. The reduced death benefit will equal the premiums paid for coverage since the coverage date or the last reinstatement date.

An insurer has the right to contest the validity of an insurance contract or any coverages under the contract and deny any claim, if the owner of the policy misrepresents or fails to disclose a material fact. A material fact is any fact that is deemed so important that it would change the decision of the insurer if it were kept hidden.  A material fact may include an intentional misrepresentation of the owner’s age, sex or health style information.

Another ground upon which an insurer may be able to deny payment of a death benefit is based on the principle of public policy that one cannot benefit from his or her own crime. The basic rule of public policy is that the courts will not recognize a benefit accruing to a criminal from his or her crime nor to anyone claiming through the criminal. This principle has been divided it into two basic categories:

1. Where the insured owns the policy on the life of the victim that the insured murders (also known as a “third party policy”); and
2. Where the victim owns the policy on his own life and the designated beneficiary commits the murder (also known as a “first party policy”).

A third party policy is where the insured owns a policy on another person’s life and designates himself or herself as beneficiary. If the policyholder then murders the life insured, he or she will be disqualified from the benefit as will his or her heirs.  This rule goes further by disqualifying the heirs of the life insured (victim) because the life insured is not a party to the contract.[1]

Furthermore, where the murderer of the insured is the sole beneficiary designated in the policy, and no alternate is designated either in the contract or by legislation, the courts cannot step in and substitute some other beneficiary for the murderer.  In such a situation, the insurer is under no obligation to pay out the proceeds at all.

There are two exceptions to the ability of an insurer to deny payment based on public policy. First, where there is a provision, statutory or in the contract, providing for payment to an alternative beneficiary, or the estate of the life insured, the alternative beneficiary would likely be entitled to receive the proceeds denied to the principle beneficiary.  However, precisely what form of alternative or other designation would be sufficient is not clear.  A court will look to the true intention of the parties at the time of entry into the contract to determine to whom the proceeds should be paid.

Second, where an insurer has entered into a contract with an independent third party to satisfy a debt owing by spouses to that third party and one of the spouses murders the other, the insurer is required to pay the death benefit to the third party, notwithstanding that it may result in a benefit to the murderer spouse.[2]  Since the murderer spouse is not the beneficiary, it could not be said that he or she insured himself or herself against his or her own crime.

A first party policy is where the victim is the owner of the policy and the life insured and is murdered by the designated beneficiary. Although public policy would prevent the beneficiary and anyone claiming through him or her from receiving the insurance proceeds, this doctrine does not stretch beyond what is necessary for the protection of the public. Where the insured does not insure himself or herself against the commission of a crime (as in a third party policy) but rather, has no part in the commission of the crime nor is claiming through the wrongdoer, the principle of public policy does not apply. In this case, the benefit reverts to the policy holder victim’s estate, as the victim was not guilty of any wrongdoing and did not bring about the event insured against.[3]

[1] Demeter v Dominion Life Assurance Co. (1982), 35 OR (2d) 560 (ONCA).

[2] Irwin Estate v CUMIS Life Insurance Co. (1997), 36 OR (3d) 634 (ONCJ).

[3] Papasotiriou-Lanteigne v Manufacturer’s Life Insurance Co., 2012 ONSC 6473.