Supreme Court of Canada
Duplisea v. T. Eaton Life Assurance Co., [1980] 1 S.C.R. 144
Date: 1979-06-21
Diane Rose Duplisea Appellant;
and
The T. Eaton Life Assurance Company Respondent.
1979: March 6, 7; 1979: June 21.
Present: Martland, Ritchie, Pigeon, Dickson, Estey, Pratte and McIntyre JJ.
ON APPEAL FROM THE SUPREME COURT OF NEW BRUNSWICK, APPEAL DIVISION
Insurance—Life insurance—Premiums—Grace period—Late premium offer sent after expiry of grace period—Cheque sent by insured—Status of policy—Death of insured prior to clearing of cheque—Delay in clearing cheque—The Insurance Act, R.S.N.B. 1973, c. I-12, s. 142(1)—Bills of Exchange Act, R.S.C. 1970, c. B-5, s. 167.
The respondent insurance company following the expiry of the grace period sent a late premium offer to its insured. The insured responded and sent a cheque in payment of the overdue premium. The cheque was duly received and deposited, however an unexplained delay of a month occurred in clearing the cheque and before it was presented the insured died. The bank on which the cheque was drawn, having received notice of its customer’s death, refused to honour the cheque which was returned to the company with a note marked “deceased”. The company thereafter refused to honour the policy insisting on a liberal construction of s. 142(1) of The Insurance Act, R.S.N.B. 1973, c. I-12 which provides in part that where a cheque is given for a premium and payment is not made according to its tenor, the premium shall be deemed not to have been paid. The action by the beneficiary of the policy succeeded at trial where the decision rested upon two grounds, first, that there was nothing in the general provisions of the policy specifically requiring payment of the renewal premiums “in advance” and, second, that s. 142(1) applied primarily to the initial premium and, even if it applied to a renewal, it would not operate as a defence in this case as the non‑payment was not the result of a failure or default of the insured but had occurred by operation of law. The Appeal Division reversed, holding that the company was entitled to have the quarterly premiums in advance, that s. 142(1) applied not only to initial premiums but also to periodic payments of premiums and that acceptance of the
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cheque by the company was conditional on its being paid when presented for payment.
Held: The appeal should be allowed.
In drafting s. 142(1) no consideration was given to s. 167 of the Bills of Exchange Act, a section designed to regulate the relationship between banker and customer. There was here unequivocal conduct amounting to waiver on the part of the insurance company by taking and depositing the cheque, and the death of the insured prior to presentment of the cheque. Since there was a cheque, not dishonoured, in the hands of the insurer or in transit between banks at the time of the happening of the event insured against, the insurer was not entitled to set up the non-payment of the cheque by reason of s. 167 of the Bills of Exchange Act as a reason for avoiding the policy. Further if the argument of the company were valid it would have had the benefit of the moneys represented by the cheque for a full month without having been at risk.
Maxon v. Irwin (1907), 15 O.L.R. 81 (Ont. H.C.); In re A Debtor, [1908] 1 K.B. 344 (C.A.); Neill v. Union Mutual Life Insurance Co. (1882), 7 O.A.R. 171 (Ont. C.A.), affirming (1881), 45 U.C.R. 593 (Q.B.); McGeachie v. North American Life Insurance Company (1893), 23 S.C.R. 148, affirming (1893), 20 O.A.R. 187 (Ont. C.A.); Millet v. The Queen, [1946] Ex. C.R. 562; Northern Life Assurance Co. of Canada v. Reierson, [1977] 1 S.C.R. 390; Blanchette v. C.I.S. Ltd., [1973] S.C.R. 833; Mutual Life Insurance Co. v. Chattanooga Savings Bank, 150 P. 190 (1915, S.C. Okla.); Turner v. Pilot Life Insurance Co. 120 S.E. 2d 223 (1961, S.C. So. Car.); Curley v. Briggs (1920), 53 D.L.R. 351 (Sask. C.A.) referred to.
APPEAL from a judgment of the Supreme Court of New Brunswick, Appeal Division allowing an appeal from a judgment of Barry J. at trial in an action by the beneficiary of a life insurance policy. Appeal allowed.
Davis G. Barry and Thomas G. O’Neil, for the appellant.
William Goss, for the respondent.
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The judgment of the Court was delivered by
DICKSON J.—In this case an insurance company, following expiry of the grace period allowed for payment of a premium, received from the insured and deposited in its bank account a cheque in payment of the overdue premium. An unexplained delay of one month occurred in clearing the cheque, during which period the insured died. A section in the Bills of Exchange Act, R.S.C. 1970, c. B-5, provides that the authority of a bank to pay a cheque drawn on it by a customer is determined, i.e. terminated, by notice of the customer’s death. The bank on which the cheque was drawn, having received notice of the death of their customer, the insured, returned the cheque to the insurance company with a note marked “deceased”.
The insurance company refused to pay to death benefit under the policy, $20,000, saying it did not have to pay because of a section in The Insurance Act, R.S.N.B. 1973, c. I-12, which provides that where a cheque is given for a premium and payment is not made according to its tenor, the premium shall be deemed not to have been paid. The insurance company sought to escape liability by the unexpected interaction of the two sections. The company insists upon a literal construction of the words of the section of The Insurance Act, even though this may work a handicap or an injustice on the beneficiary under the policy. The company, in effect, is relying on the event insured against, namely, the death of the insured, to avoid the contract of insurance. We must examine carefully the policy, the two pieces of legislation to which I have referred, and the authorities, to see whether they lead to such an anomalous result.
First, a little more detail as to the facts and the judicial history of the case. On May 1, 1973, The T. Eaton Life Assurance Company issued its policy No. 215415-6 on the life of Ralph Evans Duplisea, of Central Blissville, Sunbury County, New Brunswick. The “Plan Benefit and event on which the Benefit is payable” were stated to be “$20,000 on the death of the life insured before 1 May 1978 with provision for renewal until the
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expiry date, 1 May 2006.” The beneficiary designated in the application was the appellant, Diane Rose Duplisea, then wife of the insured. The premium was $6.64 monthly, payable on a quarterly basis of $19.92 per quarter. Premiums were paid regularly until August, 1975. On July 23, 1975 the company sent Mr. Duplisea a notice billing him for the quarterly payment due August 1, 1975. Another notice followed on August 18, and on September 8, a third notice was sent stating that notwithstanding expiry of the 31-day grace period, the premium would be accepted if received within 45 days after its due date, i.e. by September 14, 1975. On September 16, 1975, Mr. Duplisea sent a cheque for the premium to the head office of the insurance company in Toronto. It was received on September 22, 1975. By this time the grace period had expired, as had the 45-day period. The company, however, accepted the cheque and deposited it the same day in its bank account. Four days later, Mr. Duplisea was stricken with a peritoneal haemorrhage and died suddenly in the Oromocto Public Hospital. The cheque was cleared through normal banking channels from Toronto. As I have indicated, however, by the time the cheque arrived in New Brunswick on October 22, Mr. Duplisea’s bank had received notice of his death. Pursuant to s. 167 of the Bills of Exchange Act, reading:
The duty and authority of a bank to pay a cheque drawn on it by its customer, are determined by
(a) countermand of payment;
(b) notice of the customer’s death.,
the bank returned the cheque with the notation, “deceased”. At all material times there were ample funds in Mr. Duplisea’s bank account to cover the cheque.
Section 142(1) of The Insurance Act of New Brunswick reads as follows:
Where a cheque or other bill of exchange, or a promissory note or other written promise to pay, is given for the whole or part of a premium and payment is not
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made according to its tenor, the premium or part thereof shall be deemed not to have been paid.
The insurance company refused payment of the insurance proceeds contending that, by reason of s. 142(1), the overdue premium was not paid and the insurance was, therefore, out of force at date of death.
At trial, counsel for the insurance company conceded that if the cheque had been honoured on October 22 the company would have paid the face amount of the policy. In rejecting the contentions of the company, the trial judge, Mr. Justice Barry, rested his decision upon two grounds. First, there was nothing in the general provisions of the policy specifically requiring payment of the renewal premiums “in advance”. The effect of this was to permit payment of the premium for the quarter commencing August 1, 1975 at any time during the quarter, even though notices sent by the company indicated due dates which would require advance payment. Second, s. 142(1) of The Insurance Act applies primarily to the initial premium, and even if it applies to a renewal premium, it would not operate as a defence in this case because the non-payment was not the result of any failure or default by Mr. Duplisea, but by operation of law.
The Appeal Division of the Supreme Court of New Brunswick took a different view. That court held that the company was entitled to bill Mr. Duplisea for the quarterly premiums in advance, and s. 142(1) of The Insurance Act applied not only to initial premiums, but also to periodic payments of premiums. As to the point that s. 142(1) only has application when non-payment of the cheque is the result of a “failure or default by the deceased-insured”, the Appeal Division had this to say:
Counsel for the insurer conceded at trial that by accepting and depositing the cheque dated September 16, 1975 it had waived tardiness in the payment of the August 1, 1975 premium and had the cheque been paid it would have paid the proceeds of the policy to the beneficiary. Although the insurer accepted the cheque
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such acceptance was conditional upon the cheque being paid when presented for payment.
In Falconbridge, Banking and Bills of Exchange (7th Ed. 1969) 789 it states:
The taking of a bill does not suspend the creditor’s remedy on a speciality, or by distress or on a secured debt, there being no presumption that the creditor is deprived of a better remedy than an action on the bill, but in other cases a creditor who takes a bill in respect of a pre-existing debt presumably takes it as conditional payment of the debt.
As the cheque was not paid accordingly to its tenor it follows that the premium was not paid, which was a condition for reinstatement of the policy, and the policy must be deemed to have lapsed on the expiry of the 31 day period of grace, namely on September 1, 1975.
In this Court argument was confined to two points. It was submitted that the Appeal Division erred in law in finding that the premium for the quarter commencing August 1, 1975 was payable in advance. This Court considered that argument without merit and did not call upon counsel for the insurance company to respond to it. Then it was submitted that the Appeal Division erred in finding the cheque forwarded to the insurance company was not paid “according to its tenor”, and thus, by the application of s. 142(1) of The Insurance Act, the premium was deemed not to have been paid. The argument was developed in this fashion. The reason the cheque in payment of the premium was not honoured by Mr. Duplisea’s bank was, by operation of law, the very event insured against, i.e. the death of Duplisea. The return of the cheque by the bank did not constitute non-payment “according to its tenor”, but was in fact non-payment exactly in accordance with the tenor. The “tenor” of a cheque is the whole of the contract into which the makers intended to enter, including s. 167 of the Bills of Exchange Act: see Maxon v. Irwin, at pp. 88 and 91. The payment a cheque “according to its tenor” is payment by the bank on presentment during the lifetime of the maker, or by his estate on presentment after his death. That was the argument of the appellant, but
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I would prefer to rest the case on somewhat different ground.
Section 142(1) is found in Part V of the New Brunswick Insurance Act, the part applicable to life insurance. This portion of the Act reflects the major revision to the uniform life insurance act made in 1962 and enacted by the common law provinces. A reading of s. 142(1) makes it clear that the acceptance by the insurer of a cheque is not to be construed as an absolute payment of the premium, merely because the insurer accepts the instrument in payment of the premium. This accords with the common law, where payment by means of a cheque, bill of exchange or promissory note is strongly presumed to be conditional payment, unless it can be proved that the debtor gave and the creditor took the instrument intending it to be absolute payment: see Chalmers on Bills of Exchange (13th ed., 1964), pp. 338, 342. If the cheque is not paid “according to its tenor”, i.e. is dishonoured, the premium for which it was given is deemed not to be paid. As McVitty observes in The Life Insurance Laws of Canada (1976) at p. C-34, by the terms of the old uniform life insurance act, “the non-payment of the premium under such circumstances made the contract void and this unusual feature has been removed in the new Act”: see The Life Insurance Act, 1924 (N.B.), c. 31, s. 12(2) and The Insurance Act, R.S.N.B. 1952, c. 113, s. 137(2), amended by 1961 (N.B.), c. 41, s. 133(1) [now s. 142(1)]. In effect, the amendment found in s. 1.42(1) was intended to benefit the insured by avoiding the potential unjust consequences of a single missed premium payment.
It is quite apparent that in drafting s. 142(1) of The Insurance Act, no consideration was given to the implications of s. 167 of the Bills of Exchange Act. Section 167 was enacted in order to regulate the relationship of banker and customer, due to the fact that a bank—unlike the drawee on a bill of
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exchange—is obliged to honour the cheque of its customer if the account is in sufficient funds, and is therefore liable to its customer for wrongful dishonour: see Falconbridge, p. 859. Section 167 creates two exceptions to this obligation: (a) where the customer has effectively countermanded payment, or (b) where the bank has received notice of the customer’s death. That this provision affecting the relationship between banker and customer can be raised by an insurance company in order to put a retroactive end to a life insurance policy seems peculiar.
I turn now to the policy and the authorities. My starting point is the provision in the policy which appears under the heading “Death Benefits”, and which reads:
On the death of the Life Insured while this policy is in force and before the Expiry Date, the Company will pay to the Beneficiary the amount of Plan Benefit stated in the Policy Schedule.
The obligation to pay death benefits arises “On the death of the Life Insured while this policy is in force.” It is at the moment of death that, in my opinion, the effectiveness of the policy must be tested in order to determine the obligation of the insurer. The question, therefore, is whether, as at that date, the policy was in force.
In the course of his judgment the trial judge said:
Questions of waiver and estoppel do not arise as defendant’s counsel has agreed that the defendant waived their terms of payment set out in the contract when it accepted a cheque from the deceased and deposited it in its bank account on September 22, 1975, four days before the death of the deceased but possibly after expiration of the last authorized due date which would be September 14, 1975
and later:
Counsel for the defendant admits that the defendant waived the terms of the policy as to lapse in depositing the cheque to its bank account. See Teasdall v. Sun Life Assurance Co. (1927) 2 D.L.R. 502 (Ont.C.A.) I am not required to deal with that aspect of the matter because of his admission but I would hold that the defendant waived the non-payment within the time it alleges it was due by such acceptance.
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In argument before us, counsel for the insurance company said that Mr. Justice Barry was in error in describing counsel’s concession as broadly as he did, and that the concession made was more accurately defined in the passage from the judgment of the Appeal Division quoted earlier. I do not think that anything turns upon the amplitude of the concession. Mr. Justice Barry found that the policy was revived by the insurer accepting the cheque on September 22, and that the non-payment was not caused by any fault of Mr. Duplisea, but by operation of law, i.e. s. 167(b) of the Bills of Exchange Act. I believe that he was correct in both conclusions.
It is contended, nonetheless, on the part of the insurance company: (i) the acceptance of the cheque was conditional upon the cheque being paid when presented for payment; (ii) the non-payment by the bank meant that the condition for re-instatement of the policy was not met; (iii) thus the policy lapsed effective September 1, 1975. I do not agree.
As the passage from Falconbridge found in the judgment of the Appeal Division states, the taking of the cheque by the insurance company in conditional payment of the premium operates to suspend the remedies of the insurer until the cheque is either cleared or dishonoured: see also Byles on Bills of Exchange (23rd ed., 1972), pp. 128, 371-3; Chalmers on Bills of Exchange, pp. 338-40. The position of the creditor in this situation is succinctly stated by Gale C.J.H.C. in Royal Securities Corp. Ltd. v. Montreal Trust Co at p. 169:
… I am satisfied that, prima facie, the giving of a cheque or other negotiable instrument in payment of a debt is conditional payment only; if honoured, the payment becomes absolute, but, if dishonoured, the original debt remains. A corollary to that proposition is that during the currency of the negotiable instrument, the creditor’s original remedies are suspended, subject to being revived if the instrument is dishonoured. In the case of a cheque which is payable on demand, the suspension would remain, not for a specific term, but only until presentment and dishonour.
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A good example of the operation of these principles may be found in In re A Debtor, where the acceptance by a judgment creditor of a bill of exchange from his debtor was held to bar the creditor from issuing a bankruptcy notice upon the debtor and from obtaining a receiving order against him. In the case at bar, until the cheque was presented for payment at the bank of the insured, the Bank of Montreal in Saint John, New Brunswick, the remedies of the insurance company upon the policy were suspended.
At the date of the death of the insured, then, there had been no non-payment by the insured’s bank. At that date, s. 142(1) could not come into play so as to “deem” the premium not to have been paid. Consider the position of the insurance company at the moment of death. Could the insurer allege at that point that the policy had lapsed? Certainly not, as at that point Mr. Duplisea’s cheque was still in transit between banks and there had been no dishonour. As I pointed out above, the obligation to pay death benefits arises “on the death of the Life Insured while this policy is in force”. The “deeming” of s. 142(1) could only take effect from and after the dishonour, in order to revive the original debt and the remedies of the insurance company upon that debt. This could only occur after Mr. Duplisea’s death had crystallized the insurer’s obligation to pay the policy benefit.
The authorities to which we have been referred by the respondent are not inconsistent, and, if anything, indicate accord, with this view.
In Neill v. Union Mutual Life Insurance Co. a quarterly premium fell due on August 10, 1879, the insured gave a cheque to the agent of the insurance company on September 24, and asked the agent to hold the cheque until October 1 when funds would be provided at the insured’s bank to cover it. The cheque was presented on that date and payment refused. From time to time, the same
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cheque was presented for payment and each time payment refused. On October 21, the agent was informed that the account was in funds, but it then being after banking hours, the cheque was not presented. That night the insured was killed in an accident. The Court of Appeal found that the policy had ceased to be in force on August 11, nothing having been done after October 1 to revive the policy, and the dishonoured cheque lying in the agent’s hands not being payment, actual or conditional. Burton J.A., at p. 176, indicated that the result might have been otherwise had the insured died before the first of October.
The next case put forward by the respondent is McGeachie v. North American Life Insurance Company. The insured gave a promissory note for the first premium, to be paid at six months from the issuance of the policy on December 6, 1889. The note was three times renewed. The third renewal note matured on October 16, 1890 and remained overdue and unpaid at the time of death of the insured on November 6, 1890. On the day of the death, a letter from the insurance company demanding payment was received by the deceased’s brother, but the local agent of the company refused the brother’s attempts to pay the note after death. The Court of Appeal found that the policy had lapsed and, in this Court, the appeal was dismissed without hearing from the respondents. In his brief judgment, Mr. Justice King stated at pp. 151-2:
The note was taken as conditional payment of the premium and until it matured the policy was valid, but when it matured and was not paid it came within the first condition and made the policy void. I think the term void in that condition means voidable. The stipulation was for the benefit of the company who had a right to elect whether it should be void or not. Then, was anything done to show an intention on the part of the company that the policy should continue notwithstanding the breach of the condition? I cannot see that what was done was equivalent to an expression of any such intention. The insured had had eleven months of protection under the policy and I cannot see that the request
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for payment of the note would operate as a waiver of the forfeiture.
I agree in the appeal being dismissed.
In the Ontario Court of Appeal, Chief Justice Hagarty noted at p. 190 of the report that “if the assured had acted on and paid the note and the defendants had accepted the payment, I do not doubt that the plaintiff could recover” if the payment were accepted as payment of the premium and not merely payment of the note on a cancelled risk. On the following page, the Chief Justice went further and held that “the company may waive the forfeiture, and so long as they continue renewing or accepting paper the contract may continue”.
Another of the cases cited by the respondent is Millet v. the Queen. There the deceased, insured by a policy of life insurance under the Veterans Insurance Act, died after the premium cheque had been dishonoured, the cheque returned to the Department of Veterans Affairs, and the insured notified of the dishonour. Recovery was properly denied.
Finally, the facts in the case of Northern Life Assurance Co. of Canada v. Reierson, were not unlike those in the above cases. At the date of death of the life insured, the insurance company was in possession of an N.S.F. cheque for the premium. A company agent advised an employee of the insured that the group insurance was out of force and that the N.S.F. cheque should be replaced immediately. The insured died the following day. A week later, an employee of the insured attempted to pay the overdue premium. The appeal was found to be “practically concluded” by the decision in McGeachie. As the Court observed in closing, at pp. 397-8:
If the Scobie Company had given Shelemey [the agent] the sum of $69.20 immediately after March 3 following expiry of the days of grace, other questions might arise as to waiver but the difficulty which remains, so far as the respondent is concerned, is that nothing whatever
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was done in response to the demand until after the death of Scobie and after advice that the insurance coverage was no longer in force.
In none of these cases do we find the circumstances of the case at bar—unequivocal conduct amounting to waiver on the part of the insurance company by taking and depositing the tardy cheque, and the death of the insured prior to presentment of the cheque for payment. In my view, so long as a cheque, not previously dishonoured, is in the hands of the insurer or in transit between banks at the time of the happening of the event insured against, the insurer cannot set up the non-payment of the cheque by the drawee bank under s. 167 of the Bills of Exchange Act as a reason for avoiding the policy. If the policy is in good standing at the date of the event, the benefits under the policy are payable.
There is a further reason for this conclusion. In Blanchette v. C.I.S. Ltd., at p. 838 my brother Pigeon rejected out of hand the suggestion that an insurance company should have the benefit of a premium without having been at risk. If the argument of the company in the case at bar were valid, the company would have the benefit of the monies represented by the cheque received from Mr. Duplisea from date of receipt until date of presentment—a full month—without having been at risk. That is what was found objectionable in Blanchette.
I find support in two American cases, Mutual Life Insurance Co. v. Chattanooga Savings Bank and Turner v. Pilot Life Insurance Co., where like conclusions were reached on similar facts.
After reading the policy and reviewing the authorities, I am of the opinion that it is possible to give a reasonable meaning to s. 142(1) of the New Brunswick Insurance Act that meshes with s.167 of the Bills of Exchange Act, yet averts the harsh and unusual result for which the company
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contends. As of the date of Mr. Duplisea’s death, the policy was in force and thus the death benefits under that policy are payable.
If the drawer dies while a cheque is current, the payee on the cheque, here the respondent, will have a claim against the estate in respect of any premium actually unpaid at the date of death: Curley v. Briggs. In the present case, Mr. Justice Barry simply directed a set-off, and I would not disturb his disposition of the matter.
I would allow the appeal, set aside judgment of the Appeal Division and restore the judgment at trial, the whole with costs in this Court and in the Appeal Division.
Appeal allowed with costs.
Solicitors for the appellant: Clark, Drummie & Company, Saint John.
Solicitors for the respondent: McKelvey, Macaulay, Machum, Saint John.
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