Present: La Forest, L'Heureux‑Dubé, Gonthier, Cory and Major JJ.
on appeal from the court of appeal for quebec
Insurance ‑‑ Life insurance ‑‑ Exclusion clause ‑‑ Starting point of suicide exclusion period ‑‑ Effect of backdating and increase in coverage on exclusion period ‑‑ Civil Code of Lower Canada, arts. 2516, 2532.
On September 8, 1980, the insured signed an application for insurance on his life in the amount of $500,000. For reasons related to the calculation of premiums on the basis of age, the respondent insurance company and the insured agreed to select September 26 as the policy date. The policy issued on November 11, 1980 contained a suicide exclusion clause that was to be effective for two years from that date. On November 14, 1980, the insurer received payment of the initial premium and the insured agreed to an amendment to the original application, the effect of which was to reduce the coverage for accidental death. On January 12, 1981, an application was made to change the original policy by increasing the sum insured to $1,000,000, designating a new beneficiary and changing the policy date to January 26, 1981. On February 9, 1981, the modified policy was issued after the insured had provided new evidence of insurability by undergoing a medical examination. That policy was assigned the same identification number and included the same clauses as the original policy, while incorporating the requested changes. On October 20, 1982, the insured committed suicide. Since the company that was the beneficiary under the policy had declared bankruptcy, it was the appellant trustee who sued for performance of the contract. The insurer refused to pay on the basis of the suicide exclusion clause. Under art. 2532 C.C.L.C., such a clause is without effect if the suicide occurs after two years of uninterrupted insurance. The Superior Court held that September 26, 1980 was the starting point of the two‑year period provided for in art. 2532 and ordered the insurer to pay the trustee $1,000,000. The Court of Appeal allowed the insurer's appeal, concluding that November 14, 1980 was the starting point of the exclusion period.
Held: The appeal should be allowed.
In theory, the legal suicide exclusion period begins to run when the insurance contract comes into effect. In the case of life insurance, the three conditions provided for in art. 2516 C.C.L.C. must be fulfilled concurrently for the insurance to become effective. In this case, the conditions set out in art. 2516 were not met until November 14, 1980, since it was on that date that the modified application was accepted by the insurer and the initial premium paid, and there had been no change in the insurability of the risk since the date the application was signed. Thus, prima facie, the insurance contract seems to have become effective on November 14. The stipulation in the insurance contract that it will not come into force until the policy is delivered to the insured must be disregarded, as it adds to the requirements set out in art. 2516, which is prohibited by the second paragraph of art. 2500 C.C.L.C. Since art. 2516 is a provision of relative public order, however, nothing precludes the parties to an insurance contract from stipulating that it will come into effect on a date earlier than that imposed by the Code to the extent that such a derogation is favourable to the policyholder. Thus, where the parties choose to indicate an effective date on the policy that, while later than the date the application is signed, is prior to the date it is accepted, on the day the premium is paid, provided that there has been no change in insurability, the insurance contract will come into effect retroactively as of the date selected by the parties. The consequence of the parties' decision to backdate when preparing the original policy was therefore to move the effective date of the insurance contract to September 26, 1980, and the exclusion period provided for in art. 2532 had to run from that date. This insurance contract was not without an object. A period for which the insurer would receive payment in the form of a premium began to run on September 26, and it was also as of that date that the risks were assessed and the benefits insured. Although the insurer would not have had to pay compensation had the insured died between September 26 and November 14, since the conditions for the contract to come into effect had not yet been fulfilled at that time, once those conditions were met, the insurance contract came into effect retroactively. The scheme of the relevant provisions of the Civil Code does not necessarily mean that there cannot be insurance during a given period by retroactive operation of a suspensive condition without a correlative obligation on the insurer's part to pay compensation in the event of a loss. Finally, although it appears from the suicide exclusion clause that the parties agreed to have the two‑year period run from November 11, 1980, art. 2532 requires that the intention of the parties as to the effective date of the contract be determined without regard to what may have been stipulated in that clause. A review of the contract as a whole reveals that the parties intended the insurance to commence on September 26, 1980. The exclusion clause could therefore apply only until September 26, 1982. Since the insured committed suicide on October 20, 1982, the insurer could not refuse to pay the first $500,000 of the policy proceeds.
The existence of a new insurance contract does not entail the calculation of a new suicide exclusion period in every case. In light of the interpretation given to art. 2532, this exclusion period cannot run more than once within a single insurance contract. Where there is a new contract, it is necessary to determine in each case, in light of the particular circumstances, whether the new contract merely reproduces the essence of the one it replaces or whether, in replacing it, it has added thereto in such a way as to lead to the conclusion that there is no continuity between the two documents and the obligations thereunder. Such an exercise is not necessary here, as there are a number of factors that make it possible to assert that there was from the outset only one insurance contract between the parties. The increase in coverage to which the insurer agreed in February 1981 results only from a variation of the contract in effect since September 26, 1980. Consequently, the new suicide exclusion clause, which was, according to the terms of the contract, to be valid as of February 9, 1981, could not apply, and the insurer could therefore not rely on it as a basis for refusing to pay the second $500,000 portion of the policy proceeds.
Cases Cited
Referred to: McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, [1981] 2 S.C.R. 6; General Trust of Canada v. Artisans Coopvie, Société coopérative d'assurance‑vie, [1990] 2 S.C.R. 1185; Caisse populaire des Deux Rives v. Société mutuelle d'assurance contre l'incendie de la Vallée du Richelieu, [1990] 2 S.C.R. 995; Frenette v. Metropolitan Life Insurance Co., [1992] 1 S.C.R. 647; Bondu v. N.N. Compagnie d'assurance‑vie du Canada, [1994] R.R.A. 745; Lévesque v. N.N. Life Insurance Co. of Canada, [1993] R.J.Q. 2220.
Statutes and Regulations Cited
Civil Code of Lower Canada [am. 1974, c. 70, s. 2], arts. 1018, 1078.1 [en. 1982, c. 32, s. 59; am. idem, c. 58, s. 1], 2476, 2500 [am. 1979, c. 33, s. 47], 2516, 2524, 2532.
Civil Code of Québec, S.Q. 1991, c. 64, arts. 2425, 2441.
Authors Cited
Bergeron, Jean‑Guy. Les contrats d'assurance (terrestre), t. 1. Sherbrooke, Qué.: Éditions SEM Inc., 1989.
Bergeron, Jean‑Guy. Les contrats d'assurance (terrestre), t. 2. Sherbrooke, Qué.: Éditions SEM Inc., 1992.
Ghestin, Jacques, avec le concours de Marc Billiau. Traité de droit civil ‑‑ Les obligations: les effets du contrat. Paris: L.G.D.J., 1992.
APPEAL from a judgment of the Quebec Court of Appeal, [1994] R.J.Q. 627, 61 Q.A.C. 207, [1994] I.L.R. ¶1‑3058, reversing a judgment of the Superior Court, [1989] R.J.Q. 2197. Appeal allowed.
Gilles Paquin and Yoine Goldstein, for the appellant.
Peter A. Graham, Q.C., for the respondent.
English version of the judgment of the Court delivered by
1 Gonthier J. ‑‑ This appeal requires a review of the scope timewise of clauses in life insurance contracts that provide for exclusion from coverage in the event of suicide. More specifically, it requires this Court to determine when the exclusion period commences in specific circumstances, namely the backdating of a policy and an increase in coverage while the contract is in effect.
I ‑ Facts
2 The facts of this case are not in dispute. For greater clarity, it seems appropriate to set them out in the form of a synoptic table, arranged in chronological order:
September 8, 1980:The late Howard Kape signed an application for insurance on his life in the amount of $500,000 on behalf of K & A Textiles Inc., of which he was the president, which was sent to the respondent London Life Insurance Company.
September 26, 1980:Date of the original policy (Policy Date). Since the insured was born on September 27, 1947, the parties agreed to date it September 26 so that he might qualify for lower premiums, inter alia. In return, the premiums became payable as of that date.
November 11, 1980:The original policy was issued. It was dated September 26, 1980 (Policy Date) but also bore the date November 11, 1980 as the "Issue Date".
November 14, 1980:London Life received payment of the initial premium. It was also on November 14 that the insured agreed to an amendment to the original application, the effect of which was to reduce the coverage for accidental death.
January 12, 1981:An application was made to change the original policy by increasing the sum insured to $1,000,000, designating a new beneficiary and changing the policy date to January 26, 1981.
January 26, 1981:Date of the modified policy (Policy Date).
February 9, 1981:The modified policy was issued after the insured Kape had provided new evidence of insurability by undergoing a medical examination. That policy was assigned the same identification number as the original policy and stipulated that Chablis Textiles Inc. was the beneficiary and owner thereof. It was dated both January 26, 1981 and February 9, 1981 (Issue Date).
October 20, 1982:The insured Kape committed suicide.
3 Both the original policy and the modified policy contained the following clauses:
CONTRACT
. . .
The contract shall not come into force unless (1) the first premium has been paid to the Company, (2) this policy has been delivered to the policyowner, his agent or assign, or the beneficiary, and (3) no change shall, subsequent to the completion of the said application, have taken place in the insurability of the Life Insured or any Premium Waiver Nominee. In no event shall the contract continue to be in force after the Expiry Date applicable to the Basic Benefit.
. . .
SELF‑DESTRUCTION
If the Life Insured shall die by his own act, whether sane or insane, within two years from the Issue Date of this policy or from the date of any certificate of reinstatement of the contract, the liability of the Company with respect to the Basic Benefit shall be limited to an amount equal to the basic premiums paid under the contract without interest. It is provided however, that if this policy has been issued [as a] replacement of a previous policy under circumstances not requiring evidence of insurability by the Company in connection with the Basic Benefit, the two‑year period referred to above shall be measured from the date applicable to the Self‑Destruction clause in the previous policy. Notwithstanding the expiration of the two‑year period applicable under this clause any Self‑Destruction clause included in an additional benefit page shall be applicable in accordance with its terms.
POLICY‑YEAR
The policy‑years shall be computed from the Policy Date stated on the Data Page.
PREMIUMS
The agreements made by the Company are conditional on the payment of the premiums as they fall due.
The premiums payable for the benefits provided by the contract are specified on the Data Page but no premium is payable on a premium‑due date after the Policy Date if the Life Insured be not then living. The first premium‑due date shall be the Policy Date and subsequent premium‑due dates shall be as specified on the Data Page.
4 Since the company that was the beneficiary under the policy had declared bankruptcy, it was the appellant trustee who sued for performance of the contract. The Superior Court allowed his suit, [1989] R.J.Q. 2197, but the Court of Appeal allowed the insurer's appeal, [1994] R.J.Q. 627, 61 Q.A.C. 207, [1994] I.L.R. ¶1‑3058.
II ‑ Statutory Provisions
5 The relevant statutory provisions are arts. 2516 and 2532 of the Civil Code of Lower Canada, which cannot be derogated from except to the extent that the derogation is more favourable to the policyholder or to the beneficiary (art. 2500, second paragraph):
2516. Life insurance becomes effective when the application is accepted by the insurer, to the extent that it is accepted without modification, that the initial premium is paid and that there has been no change in the insurability of the risk from the signing of the application.
2532. Suicide of the insured is not a cause of nullity. Any stipulation to the contrary is without effect if the suicide occurs after two years of uninterrupted insurance.
6 It should be noted that arts. 2425 and 2441 of the Civil Code of Québec essentially restate these provisions without significant amendment.
III ‑ Judgments Below
Superior Court, [1989] R.J.Q. 2197
7 According to Benoit J., September 26, 1980 was the starting point for calculating the suicide exclusion period and the insurer was consequently required to pay compensation, since the exclusion stipulation was without effect after two years of uninterrupted insurance. Benoit J. began by acknowledging that the amount in the case at bar would not have been payable had the insured committed suicide between September 26, 1980, the date the application was signed, and November 11, 1980, the date the original policy was issued. There was in his view no risk at any time during that period, which meant that there could be no obligation to compensate.
8 Benoit J. noted, however, that while the suicide exclusion clause referred to the date November 11, 1980, art. 2532 C.C.L.C. requires the calculation of a period of two years of uninterrupted insurance. After drawing a parallel with McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, [1981] 2 S.C.R. 6, Benoit J. accordingly stated that it would be more logical to consider the policy years, the starting point of which was set at September 26, for the purposes of the exclusion clause. He also considered that, even if the insurance coverage did not begin until November 11 or 14, 1980, the effect of the parties' decision to backdate the policy was to cause the two‑year period provided for in art. 2532 C.C.L.C. to run as of September 26, 1980. Benoit J. refused to accept the date of the amended policy, January 26, 1981, as it was in his view necessary to determine the starting point of the insurance, not that of its modification. As a result, since the suicide occurred on October 20, 1982, the insurer could not rely on the exclusion clause to refuse to pay the $500,000 of the original coverage.
9 As for the additional coverage obtained in January 1981, Benoit J. stated that it did not require the calculation of a new two‑year period. He noted that the document signed by the insured on January 12, 1981 was an application to change the policy and was evidence of the parties' intention to amend the existing contract rather than to replace it. He further noted that the policy issued on February 9, 1981 bore the same identification number as the one issued in November 1980 and that a copy of the original application of September 8, 1980 was attached thereto. Benoit J. also minimized the significance of the new medical examination that was required in light of his conclusion that the earlier policy had merely been replaced, as opposed to a new contract being entered into. He reinforced his conclusion by stating that it could be inferred from art. 2524 C.C.L.C., which provides that the two‑year period runs again where individual life insurance is reinstated, that the period does not begin to run again where an insurance contract which has not ceased to be effective is amended. Benoit J. accordingly ordered the insurer to pay the trustee the sum of $1,000,000.
Court of Appeal, [1994] R.J.Q. 627
10 Baudouin J.A., writing for the court, began by ruling out any analogy with decisions from common law jurisdictions, and in particular with McClelland, supra. He noted that Ontario insurance law, which governed in that case, does not place time limits on suicide exclusion clauses as does Quebec civil law. Thus, he considered that the period provided for in art. 2532 C.C.L.C. runs only from the time the risk is covered. Before that date, there could in his view be no contractual relationship on the basis of which the insurer would be under an obligation to pay compensation for a loss. In his view, the effective date of the contract was the one to be considered, rather than the date on which it was concluded.
11 Baudouin J.A. noted that an insurance contract becomes effective in accordance with the conditions laid down in art. 2516 C.C.L.C. and that the contract clause added thereto in the case at bar must therefore be disregarded. On the basis of the facts adduced in evidence, Baudouin J.A. concluded that the requirements of art. 2516 C.C.L.C. were prima facie not met until November 14, 1980. Although he recognized that the parties were free to have the insurance become effective on a date earlier than the one provided for in the Code, he concluded that that could not be the case here. In his view, the only reason for choosing to backdate the policy was to allow the insured to benefit from lower premiums, and an intention to give retroactive effect to the insurance coverage could not be inferred from this fact alone. Furthermore, he asserted that the opposite interpretation would, by advancing the effective date of the contract to September 26, 1980, at which time the initial premium had not yet been paid nor the final application accepted, have imposed on the insurer an obligation to pay compensation had the insured taken his life on September 29, 1980. Baudouin J.A. was therefore of the view that November 14, 1980, the effective date of the insurance, was the starting point of the exclusion period.
12 Having thus held that the insurer could legitimately rely on the exclusion clause to refuse to pay the claims for compensation submitted to it, Baudouin J.A. refrained from ruling on the effect of the increase in coverage. He was of the view, however, that for the purposes of art. 2532 C.C.L.C., such an increase amounts to new insurance, to which a new exclusion period would apply.
IV ‑ Analysis
13 Like the courts below, this Court must decide two main issues in order to dispose of the present appeal. First, it is necessary to determine whether the parties' decision to backdate when preparing the original policy has a bearing on the validity of the suicide exclusion clause. Second, this Court must decide in light of the facts of the case whether the increase in coverage obtained in early 1981 caused a new exclusion period to run in respect of the additional coverage.
1. Backdating and the Exclusion Period
14 Since the reform of Quebec insurance law in 1976, exclusion from coverage under life insurance contracts in the event of suicide comes within the scope of freedom of contract. Whereas suicide was formerly a legal basis for exclusion of risks and a cause for nullity of the contract, it can now be excluded by agreement only and does not affect the validity of the contract. Thus, suicide does not release the insurer from its obligation to pay compensation unless the parties have provided otherwise in the contract. Furthermore, art. 2532 C.C.L.C. limits the scope in time of such provisions by stating that they have no effect if the suicide occurs after two years of uninterrupted insurance. In other words, the parties are free to agree on an exclusion period that is shorter, but not to exclude suicide for a longer period. The effect of arts. 2500 and 2532 C.C.L.C. is to reduce pro tanto the scope of any contractual provision that purported to do so.
15 In a matter such as the one before this Court, it is necessary, since the exclusion clause was, according to its terms, to be effective for two years from November 11, 1980, to determine whether that period corresponds to the first two years of uninterrupted insurance. Thus, the central issue is to identify the time from which there was insurance for the purposes of art. 2532 C.C.L.C. This determination first requires a review of the principles governing the formation and coming into effect of a life insurance contract. One of the main difficulties in this appeal results from the potential confusion between the time when the insurance contract comes into effect and the time when the obligation to pay compensation for a loss actually takes effect, or in other words the time as of which that obligation may materialize.
16 Article 2476 C.C.L.C. restates the general civil law rule in providing that an insurance contract is formed upon the insurer's acceptance of the policyholder's application. Although the coming into effect of the contract should normally follow, in the case of life insurance art. 2516 C.C.L.C. makes it subject to three specific conditions. This Court considered the resulting conceptual distinction between the formation and coming into effect of the contract in General Trust of Canada v. Artisans Coopvie, Société coopérative d'assurance‑vie, [1990] 2 S.C.R. 1185, in which it explained how art. 2516 C.C.L.C. is to be interpreted. It is now well settled that the three conditions must be fulfilled concurrently for the insurance to become effective. Thus, it is conceivable for the initial premium to be paid before or at the time the unaltered application is accepted. If that is the case, to the extent that there has been no change in the insurability of the risk from the signing of the application, the contract will come into effect when the application is accepted. If, however, the initial premium is not paid until after the unaltered application has been accepted, it will be impossible to determine whether the insurability is still the same until this first payment has been made. Speaking for the Court in General Trust, supra, at pp. 1194‑95, I explained the consequences of such a situation for the coming into effect of a contract:
If, as in the case at bar, the initial premium is not paid until after the application is accepted (which implies that the coincidence of the three conditions is not likely to occur until after the contract is formed), art. 2516 C.C.L.C. has the effect of a two‑part suspensive condition which when met causes the previously formed contract to come into effect: this condition will be met by payment of the premium if no change has occurred in the insurability of the risk at the time the payment is made. As is generally the case in civil law, the fulfillment of the suspensive condition operates retroactively and means that the contract is deemed to have taken effect at the time it was formed. Here, the wording expressly provides for such retroactivity in stating that the insurance becomes effective when the application is accepted.
17 These considerations constitute the backdrop to any analysis under art. 2532 C.C.L.C. Thus, even where the initial premium is not paid until after the application is accepted, the coming into effect and formation of the contract, although conceptually distinct, will coexist in time. While it is therefore correct to assert that the legal suicide exclusion period begins in theory to run when the contract comes into effect, that moment will nevertheless, owing to retroactivity, be the same as the moment at which the contract was formed.
18 In order to apply these principles to the instant appeal, the stipulation in the contract that it will not come into force until the policy is delivered to the insured must be disregarded from the outset, as it adds to the requirements set out in art. 2516 C.C.L.C., which is prohibited by the second paragraph of art. 2500. As I explained in General Trust, supra, at p. 1197, a clause such as this cannot have effect to the extent that it is less favourable to the policyholder. As to the remainder, however, it will survive, which in the case at bar leaves conditions similar to those provided for in the Code.
19 This being the case, the parties do not dispute that those conditions, which are set out in art. 2516 C.C.L.C., were not met until November 14, 1980. As can be seen from the evidence, it was on that date that the modified application was accepted by the insurer and the initial premium paid, and there had been no change in the insurability of the risk since September 8, 1980, the date the application was signed. Thus, prima facie, as Baudouin J.A. concluded, the insurance became effective on that day in November 1980. This conclusion is not sufficient, however, to dispose of this appeal.
20 Nothing precludes the parties to an insurance contract from stipulating that it will come into effect on a date earlier than that imposed by the Code. To the extent that such a derogation is favourable to the policyholder, it is of course not barred by art. 2516 C.C.L.C., a provision of relative public order. Thus, the insurer is always free to agree to provide coverage as of the date the application is signed even if the initial premium is not paid until later. Moreover, it is possible for the coming into effect to remain subject to payment of the initial premium but for the parties to agree to date the policy earlier than the date the application is accepted. In such a case, the principles developed in General Trust, supra, would in my opinion apply by analogy.
21 In the case at bar, when the initial application was signed, it was decided to backdate the policy for reasons related to the calculation of premiums on the basis of age. The amount of life insurance premiums depends to a great extent on the age of the insured when the policy is issued, and insurers therefore sometimes agree to backdate a policy so that the policyholder may benefit from lower premiums. In the instant case, the insured Howard Kape was born on September 27, 1947. The date September 26, 1980 was selected so that he could be deemed to be 32 years old for the purposes of fixing the premiums. This was to Mr. Kape's advantage, since the amount of the premiums was reduced accordingly, but backdating was not without benefit to the insurer, which began to be paid as of that date whereas the correlative obligation of paying compensation in the event of a loss did not materialize during the period prior to November 14, 1980.
22 The real dispute between the parties concerns the consequence of this decision to backdate the policy. The appellant maintains that the coming into effect of the insurance was accordingly moved to September 26, 1980 and that consequently the exclusion period provided for in art. 2532 C.C.L.C. had to run from that date. The respondent contests this reasoning, relying on the wording of the contract in question and arguing that the scheme of the Code's insurance provisions bars any retroactive coming into effect. In my opinion the appellant's interpretation must prevail. I am of the view that an insurance contract existed as of September 26, 1980. It is the existence of such a contract that is in issue in art. 2516 C.C.L.C., and it is also this contract that must be considered in determining the starting point of the uninterrupted insurance contemplated by art. 2532 C.C.L.C.
23 Thus, contrary to what the respondent has suggested, this contract was not without an object. A period for which the insurer would receive payment in the form of a premium began to run on September 26, 1980. It was also as of September 26, 1980, subject to subsequent fulfilment of the other conditions for the coming into effect of the contract, that the risks were assessed and the benefits insured. It is clear that had Mr. Kape died between September 26 and November 14, 1980, the insurer would not have had to pay compensation, since the conditions for the contract to come into effect had not yet been fulfilled at that time. Once those conditions were met, however, it must be concluded that an insurance contract came into effect retroactively, to September 26, 1980. I need only repeat what I said in General Trust, supra, at p. 1195, concerning art. 2516 C.C.L.C.:
The appellants submit in opposing such a system that the insurer can collect premiums for a period during which he has assumed no risk, a possibility ruled out by this Court in certain cases from the common law provinces . . . . This proposition is incorrect because the coming into effect of the insurance is retroactive: when the suspensive condition is fulfilled, the contract is deemed to have come into effect at the time the application was accepted. This retroactivity explains why the insurer can receive premiums for the period between acceptance of the application and payment of the initial premium. While it is true that in practice the insurer will not have to pay the amount of the insurance if the risk occurs during this period, the fact remains that during this period he assumes the ageing of the insured and remains bound by his earlier undertaking, in particular by the amount of the premium determined in accordance with the circumstances existing at the time the contract was formed, an amount which could have been paid at that time.
Thus, under art. 2516 C.C.L.C., the period that runs in some cases from the acceptance of the application to the payment of the initial premium is an integral part of the insurance contract. Although it cannot give rise to an obligation to pay compensation for a loss, it plays a central role in defining the parties' obligations for the entire term of the insurance, respecting both premiums and the suicide exclusion period.
24 By analogy, should the parties choose to indicate a date on the policy that, while later than the date the application is signed, is prior to the date it is accepted, retroactivity will operate as described in General Trust. Thus, on the day the premium is paid, provided that there has been no change in insurability, the contract will come into effect retroactively as of the date selected by the parties. In this sense, insurance can be considered to exist as of the selected date. As a result of the special nature of life insurance combined with the condition that there be no change in insurability, however, the contract can never come into effect nor retroactivity operate in the event a loss has occurred since the signing of the application, which means that an obligation to pay compensation for that loss cannot arise. Since the insured risk is death, it is understood that if the policyholder dies before the application is accepted without modification and the initial premium is paid, there will clearly be a change in insurability as of the day those two conditions are met. As a result, it will be simply impossible for the contract to come into effect retroactively.
25 This application of contractual retroactivity, the theoretical basis for which lies in freedom of contract, does not offend against common sense (see Jacques Ghestin, Traité de droit civil ‑‑ Les obligations: les effets du contrat (1992), at p. 166). As L'Heureux‑Dubé J. noted in Caisse populaire des Deux Rives v. Société mutuelle d'assurance contre l'incendie de la Vallée du Richelieu, [1990] 2 S.C.R. 995, at p. 1003:
In matters of insurance, as in other areas of the civil law, the principle of freedom of contract applies, and in general therefore it is for the parties to an insurance contract to define the limits of the risk covered and the conditions under which the indemnity is payable.
26 Thus, as I explained in General Trust, supra, the scheme of the relevant provisions of the Civil Code does not necessarily mean that there cannot be insurance during a given period by retroactive operation of a suspensive condition without a correlative obligation on the insurer's part to pay compensation in the event of a loss. That is the case, for example, where an insurer is required to reinstate insurance under art. 2524 C.C.L.C. The holder of a life insurance contract cancelled for non‑payment of the premiums can still have the contract restored, with its original conditions, if he or she pays the overdue premiums, repays the advances received on the policy and demonstrates that the insured still fulfils the conditions required to be insurable under the cancelled contract. Owing to the reactivation of the contract, insurance can be considered to exist during the period of interruption, inasmuch as the insurer assumes the ageing of the insured during that period and is bound once again by its earlier undertaking. Although this retroactive reinstatement of the contract might suggest that the legal suicide exclusion period continues to run during the period of interruption, arts. 2532 and 2524 C.C.L.C. are very careful to state that such is not the case.
27 Since I am of the view that the parties were not in theory barred from stipulating that the contract should come into effect on a date prior to the acceptance of the application, I shall now consider the terms of the policy which according to the respondent indicate a contrary intention. Before doing so, however, it is necessary to recall certain considerations that should guide the interpretation of insurance contracts. As L'Heureux‑Dubé J. explained in Frenette v. Metropolitan Life Insurance Co., [1992] 1 S.C.R. 647, at p. 667:
In construing the terms of an insurance contract, it is now well recognized that the principles of construction which apply are the same as those generally applicable to commercial contracts. Indeed, some of these principles have been codified in the Civil Code in arts. 1013 to 1021. Thus, should a contract need interpretation, the cardinal rule is that the intention of the parties must prevail, subject of course to the public order provisions of the Civil Code. In the search for this intention, particular consideration must be given to the terms used by the parties, the context in which they are used and finally the purpose sought by the parties in using these terms . . . . [Emphasis in original.]
28 In the case at bar, an initial reading of the policy does of course give the impression that the parties intended the suicide exclusion period to run from November 11, 1980. The respondent's submissions might thus appear valid at first glance. However, art. 2532 C.C.L.C. requires that the intention of the parties as to the effective date of the contract be determined without regard to what may have been stipulated in the exclusion clause. In this sense, it is therefore understood that the exclusion clause can, as worded, have full force and effect only if November 11, 1980 coincides with, or is earlier than, the starting date of the insurance period. A review of the contract as a whole reveals, however, that such is not the case.
29 It is, indeed, well settled that the various clauses of a contract cannot be considered in isolation but must be given an interpretation that takes the entire document into account. In this regard, art. 1018 C.C.L.C. provides as follows:
1018. All the clauses of a contract are interpreted the one by the other, giving to each the meaning derived from the entire act.
In the case at bar, a number of factors indicate that the parties did in fact intend the insurance to commence on September 26, 1980. The decision, which was freely made, to select that date as the policy date militates very strongly in favour of this conclusion. Thus, September 26 became the relevant date for calculating the premiums and it was to mark the commencement of the subsequent policy years. The premiums thus became payable on September 26 of each year, until the policy expires, on September 26, 2018. The parties subsequently agreed to calculate the premiums on a monthly basis, with the result that they became payable on the 26th of each month. Accordingly, a premium was in fact paid for the period from September 26 to November 14, 1980. Furthermore, the terminology used by the parties in the clause on the coming into force of the policy, while not conclusive, clearly does not rule out the possibility that the contract might come into effect retroactively. It is in fact stipulated that the contract shall not come into force unless certain requirements are met, not until they are met. On the whole, it can be concluded on the basis of these factors that the date around which the policy is structured is September 26 rather than November 11.
30 This conclusion is in line with McClelland, supra. Of course, that case concerned a dispute originating in Ontario and thus cannot determine the outcome of this appeal. It is clear, as this Court noted in Caisse populaire des Deux Rives, supra, at pp. 1003‑4, that insurance law must develop in harmony with the rest of Quebec civil law, of which it forms a part, although North American insurance practices, such as backdating, cannot be ignored. In that sense, the decision in McClelland, which was based solely on an overall interpretation of a policy similar to the one at issue in the instant case, is of definite comparative interest. That case concerned an individual holder of a life insurance policy issued on February 28, 1968 who committed suicide on January 31, 1970. The policy contained a clause providing for exclusion from coverage should the insured commit suicide "within 2 years of the effective date of this policy". This notion of "effective date" was not defined, but the application signed by the insured included a declaration that the policy would become effective when delivered to him. The insurer naturally relied on that declaration as a basis for refusing to grant compensation. However, the application for insurance, which was filled out on January 30, 1968, was dated January 23, 1968, the parties having agreed on the latter date for reasons related to calculation of the premium. The policy further stipulated that the coverage extended to January 23, 1988 and that the policy years would date from January 23 of each year. This Court therefore had to determine whether January 23 or February 28, 1968, was to be used for calculating the suicide exclusion period. Dickson J., writing for the majority, selected the first of these two dates on the basis of all the relevant documents, at pp. 19‑20:
It seems to me incongruous, to say the least, that the policy would be partly in effect on one date and partly in effect on another date, that for some purposes the effective date of the policy would be one date and for other purposes another. Notwithstanding the wording of the Declaration I do not think that the language of the policy leads inexorably to the construction for which the assurance company contends.
It is apparent upon reading the policy that it is entirely structured around the date January 23. The principal sum is payable on the death of the assured prior to January 23, 1988. The duration of coverage is to a January 23 date. Policy years date from January 23, 1968. Premium calculations date from January 23. The conversion privilege is related to January 23. I have difficulty concluding it was the intention of the parties that the effective date of the policy for the purposes of the self‑destruction clause would be February 28 but for all other purposes the effective date of the policy was January 23.
31 These comments are equally relevant here, as the issue in both cases is to identify the intention of the parties as to the effective date of the contract. Whether it is by agreement of the parties or owing to a requirement of the Civil Code that the starting point of the exclusion period depends on this effective date is irrelevant. In the circumstances of the present case, and in light of the rule of interpretation set out in art. 1018 C.C.L.C., I must conclude that the parties, by deciding to backdate the policy, agreed that there would be insurance coverage as of September 26, 1980. That date must therefore be the starting point of the period of two years of uninterrupted insurance referred to in art. 2532 C.C.L.C. As Professor Jean‑Guy Bergeron observed in Les contrats d'assurance (1989), vol. 1, at p. 213:
[translation] Insurers sometimes take the liberty of having a contract come into effect on a date before its acceptance. For example, they might select the date of the application. For the calculation of certain periods, such as that of exclusion for suicide or the incontestability of the policy, insurers will attempt to defer them to a later date, arguing that the sole purpose of having the contract come into effect at an earlier date was to have the policyholder benefit from a lower premium related to a younger age. In my opinion, a contract has only one effective date. That of the policy, if more favourable, must apply. Insurers must be aware that their generosity brings with it all the consequences attaching to the effective date. Furthermore, that generosity favours not just the policyholder, but also the insurer, which will receive a premium as of that time, and each anniversary of the policy will subsequently be advanced.
In my view, even if the parties agreed to backdate the policy to their mutual advantage in respect of the premiums, the selected date is nevertheless the effective date of the insurance contract. There is no justification for depriving the insured of any other advantages attached thereto by law, such as those related to the definition of the risk covered in the event of suicide, especially since the insurer benefited from receiving the full premium knowing that the risk had not occurred between September 26, 1980, the policy date, and the payment of the initial premium on November 14, 1980. I therefore conclude that the exclusion clause in the case at bar could have effect only until September 26, 1982. Since the insured committed suicide on October 20, 1982, the respondent could not refuse to pay compensation, at least not in respect of the first $500,000 of the policy proceeds.
2.The Increase in Coverage and the Exclusion from Coverage in the Event of Suicide
32 In order to dispose of this second argument, it must be recalled that, in response to an application filled out by Howard Kape on January 12, 1981 to change the original policy, the respondent agreed on February 9, 1981 to increase the coverage from $500,000 to $1,000,000, effect a substitution of beneficiaries and change the policy date to January 26, 1981. After requiring that the insured undergo a new medical examination, the respondent therefore issued a policy bearing the same number and including the same clauses as the original policy, while incorporating the requested changes. The parties of course give different interpretations of how such an increase in coverage affects the suicide exclusion period.
33 Underlying art. 2532 C.C.L.C. is a desire to protect the insurer, a concern to avoid the possibility of a policyholder taking out insurance only to carry out a plan to commit suicide shortly thereafter. The legislature intended this protection to be quite limited, however, as it also took care to restrict its scope to two years of uninterrupted insurance, after which period suicide can in no case be a cause of nullity. Consequently, and in light of the interpretation given to art. 2532 C.C.L.C., it is clear that the suicide exclusion period cannot run more than once within a single insurance contract (see Bergeron, Les contrats d'assurance (1992), vol. 2, at p. 62).
34 This being the case, the existence of a new contract will not necessarily entail the calculation of a new exclusion period in every case. Where, for example, an insurer agrees on the signing of the application to issue a temporary policy that will be replaced before it expires by a definitive policy under which the same insurer covers the same risk, it is possible that the exclusion period will begin to run as soon as the temporary policy comes into effect (see, for example, Bondu v. N.N. Compagnie d'assurance‑vie du Canada, [1994] R.R.A. 745 (Sup. Ct.); Lévesque v. N.N. Life Insurance Co. of Canada, [1993] R.J.Q. 2220 (Sup. Ct.)). Similarly, where short‑term policies are renewed without change, the insurance periods of the replaced contracts must of course be taken into account. It will therefore be necessary to determine in each case, in light of the particular circumstances, whether the new contract merely reproduces the essence of the one it replaces or whether, in replacing it, it has added thereto in such a way as to lead to the conclusion that there is no continuity between the two documents and the obligations thereunder.
35 Such an exercise is not necessary in the case at bar, however, as there are a number of factors that make it possible to assert that there was from the outset only one insurance contract between the parties. The increase in coverage to which the respondent agreed in February 1981 results only from a variation of the contract in effect since September 26, 1980. Thus, when the insured and the beneficiary wished to obtain that increase, they filled out a document entitled "Application for Policy Change". Of the two sections of that document, only the one on amending the existing contract was filled out, while the other, which could have led to the conclusion of a new contract, was left blank. Similarly, on the first of the four pages of the document in question, the parties were asked to specify whether the purpose of the application was to replace an existing contract and this question was answered in the negative. The respondent then issued, under the same identification number as had been used in November 1980, a policy incorporating the requested changes. With the exception of the latter, however, the various contract clauses remained unchanged. Furthermore, the application for change filled out in January 1981 and the original application of September 8, 1980 were attached to the modified policy.
36 In these circumstances, it must be concluded that the new documents signed in early 1981 merely amended the insurance contract, which had, within the meaning of arts. 2516 and 2532 C.C.L.C., become effective on September 26, 1980. Consequently, the new suicide exclusion clause, which was, according to the terms of the contract, to be valid as of February 9, 1981, could not have effect and the respondent could not rely on it as a basis for refusing to pay the second $500,000 portion of the policy proceeds. Since there was uninterrupted insurance from September 26, 1980 under a single contract, the respondent was not free to renew the exclusion from coverage in the event of suicide.
V ‑ Disposition
37 For these reasons, I would allow the appeal, restore the judgment of the Superior Court and, therefore, order the respondent to pay the appellant the sum of $1,000,000 with interest from March 17, 1983 and the additional indemnity provided for in art. 1078.1 C.C.L.C. from December 16, 1985, the whole with costs throughout.
Appeal allowed with costs.
Solicitors for the appellant: Goldstein, Flanz & Fishman, Montreal.
Solicitors for the respondent: McDougall, Caron, Montreal.
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