By Michael Schacter
Kaufman Laramée LLP
In this month’s edition of the 10 Essential Judgments, we will be looking at insurance law, particularly non-marine insurance. This small section of our Civil Code, comprised of 116 articles, is the source of one of the largest bodies of jurisprudence and occupies countless attorneys, and even firms, throughout the province.
Rather than attempt to cover such a broad topic as a whole, we have identified 10 judgments that should be of interest to those who are not specialized in this field.
1. Compagnie d'assurance Wellington v. M.E.C. Technologie inc., J.E. 99-524 (C.A.)
This 1999 Court of Appeal decision, which is at the origin of the oft-used “Wellington Motion”, set a precedent for insureds who have been refused coverage by their insurer to seek specific enforcement of the insurer’s duty to defend.
In its reasons for judgment, the Court affirms the following 6 principles:
1) The insurer’s obligation to defend is distinct from its obligation to indemnify;2) The obligation to defend is broader than the obligation to indemnify, the first being only based on allegations and the second on facts that must be proven;3) The obligation to defend is analyzed on the basis of the allegations in the statement of claim;4) To deny the existence of the obligation to defend, one must use general interpretation principles to determine that the allegations contained in the proceedings do not fall within the ambit of the insurance policy;5) The mere possibility that a claim may be covered by the policy is sufficient to engage the insurer’s obligation to defend. This obligates the insurer to take up the case of its insured, even if certain damages claimed are not covered under the policy;6) However, the insurer’s obligation to indemnify is not enforceable unless judgment is rendered against the insured or a transaction intervenes that can be set up against the insurer.
The insured deprived of coverage is therefore able to enforce the insurer’s duty to defend by way of an interlocutory motion rather than having to wait to be reimbursed for its legal costs after the conclusion of the proceedings.
2. Zurich compagnie d'assurances v. Chaussures Bruno Scola (1985) inc., J.E. 96-1836 (C.A.)
Generally, an insured that makes an admission detrimental to its case to the opposing party is subject to losing its rights under the policy.
However, when the insurer does not take up the defence of its insured and the loss is subsequently found to be subject to coverage, the insurer runs the risk of having admissions made by the insured set up against itself.
In the Zurich case, Justice Mailhot confirmed this principle, writing on behalf of a unanimous bench:
“Il est vrai que l'on ne peut reprocher à ZURICH de ne pas être intervenue officiellement dans l'action principale pour offrir une preuve contre celle des réclamantes ou contre les admissions. En effet, c'est un principe reconnu en droit des assurances québécois et canadien que lorsqu'un assureur nie couverture à son assuré, il ne possède plus aucun droit lui permettant de contester la réclamation dans l'action principale. C'est ce principe que le juge Lagacé a reconnu. Cependant, dans l'action en garantie qui était jointe et à l'égard de laquelle il y avait une preuve commune, il appartenait, à mon avis, à ZURICH de faire une preuve directe en contestation de l'admission si elle entendait véritablement nier le montant des dommages. Car sinon, les conclusions de l'action en garantie risquaient d'être accueillies: ‘À défaut de prendre fait et cause, condamner la défenderesse en garantie à indemniser et à rembourser à SCOLA tout montant que cette dernière pourrait être appelée à payer...’”
The general good faith requirement incumbent on contracting parties is particularly important in the case of insurance contracts. In 1990, the Supreme Court of Canada, in Fletcher v. Manitoba Public Insurance Co.,  3 S.C.R. 191, found that an insurance agent had a duty to properly inform a potential insured on coverage options, and failure to do so could be a tort.
Several months later, the Court of Appeal in Baril decided to apply the Fletcher decision to Quebec civil law principles in the following manner:
“Je crois que l'on peut, dans l'état actuel du droit civil comme d'ailleurs de la common law, conclure qu'il existait dans les circonstances de l'espèce de la part de l'agent une obligation civile précontractuelle de renseignement.”
The Court also makes an important distinction between an insurance agent, who is the mandatary of the insurer, and an insurance broker or advisor, whose relationship as intermediary between the insurer and insured is quite different.
4. Aviva compagnie d’assurances du Canada v. 2958-5049 Québec Inc., 2009 QCCA 2286
As stated above, an insurance broker’s role is significantly different from that of an agent who works for only one insurer. A broker, who usually sells policies from multiple insurers, is often considered to be the mandatary of the insured, not the insurer.
However, this rule, like most others, has its exceptions and doctrine has regularly stated that brokers can be considered as acting as the mandatary for either the insurer or the insured, depending on the context of their actions and the specific action taken.
In the case of Aviva, the Court of Appeal found that the broker, being duly mandated, was able to bind the insurer and issue riders on its behalf:
“ Par ailleurs, [le juge de première instance] statue, à bon droit, que le courtier avait le pouvoir de lier l’assureur en vertu du mandat de courtage intervenu entre les parties après avoir pris en compte la preuve administrée à ce sujet.”
5. Meale v. Zurich compagnie d’assurances, J.E. 98-892 (C.A.)
Anyone who has had the misfortune to read insurance contracts can attest to their universal complexity. Many clauses are ambiguous or do not have a clear meaning at first glance and the courts have explained how to approach this. In Meale, The Court of Appeal set forth the following approach:
“Pour déterminer si la cause des dommages est un risque couvert ou exclu, les tribunaux doivent interpréter les dispositions de la police d'assurance en fonction des principes généraux d'interprétation du document notamment:
1) la règle contra proferentum [sic];
2) l’interprétation large des dispositions concernant la garantie et l’interprétation restrictive des clauses d’exclusion et;
3) le fait qu’il est souhaitable, tout au moins dans le cas où la police est ambiguë, de donner effet aux attentes raisonnables des parties.”
Insurance contracts are often, though not always, considered to be contracts of adhesion. Thus, the rule of contra preferentum, requiring that an ambiguous clause be interpreted against the stipulator, would have ambiguous clauses interpreted in favour of the insured in most insurance cases.
6. Kosmopoulos v. Constitution Insurance Co.,  1 S.C.R. 2, J.E. 87-218
To take out insurance, the insured must have an interest in the object of the insurance. Historically, the extent of this interest was thought to be quite restrictive. However, in Kosmopoulos, a decision also of interest in corporate law, the Supreme Court of Canada reversed this trend and set forth the principle that the concept of insurable interest should be interpreted more liberally.
Mr. Kosmopoulos was the sole shareholder of a corporation and he personally held an insurance policy on the corporation’s goods, which had perished in a fire. Despite not personally owning the affected property, the Court accepted that Mr. Kosmopoulos had an insurable interest, stating:
“42. In my view, there is little to commend the restrictive definition of insurable interest. As Brett M.R. has noted over a century ago in Stock v. Inglis, supra, it is merely "a technical objection ... which has no real merit ... as between the assured and the insurer". The reasons advanced in its favour are not persuasive and the policies alleged to underlie it do not appear to require it. They would be just as well served by the factual expectancy test. I think Macaura should no longer be followed. Instead, if an insured can demonstrate, in Lawrence J.'s words, "some relation to, or concern in the subject of the insurance, which relation or concern by the happening of the perils insured against may be so affected as to produce a damage, detriment, or prejudice to the person insuring", that insured should be held to have a sufficient interest. To "have a moral certainty of advantage or benefit, but for those risks or dangers", or "to be so circumstanced with respect to [the subject matter of the insurance] as to have benefit from its existence, prejudice from its destruction" is to have an insurable interest in it. To the extent that this Court's decisions in Clark v. Scottish Imperial Insurance Co., supra, Guarantee Co. of North America v. Aqua‑Land Exploration Ltd., supra, and Wandlyn Motels Ltd. v. Commerce General Insurance Co., supra, are inconsistent with this definition of insurable interest, I respectfully suggest that they should not be followed.”
7. Whiten v. Pilot Insurance Co., 2002 SCC 18
The duty of dealing in good faith is bilateral, and no exception is made in the case of insurance. On the insurer’s side, the courts are not reticent to sanction a breach of this duty.
In a 2002 majority decision, the Supreme Court found that an insurer who unjustly refused to indemnify the insured was liable for punitive damages. Binnie, S.C.J. wrote:
“ In the case at bar, Pilot acknowledges that an insurer is under a duty of good faith and fair dealing. Pilot says that this is a contractual duty. Vorvis, it says, requires a tort. However, in my view, a breach of the contractual duty of good faith is independent of and in addition to the breach of contractual duty to pay the loss. It constitutes an “actionable wrong” within the Vorvis rule, which does not require an independent tort. I say this for several reasons.”
Although coming out of Ontario, this decision has been regularly applied by lower courts in Quebec.
8. Bureautique Nouvelle-Beauce inc. v. Compagnie d'assurance Guardian du Canada, J.E. 95-1025 (C.A.)
One aspect of the insured’s duty to act in good faith is his obligation to report to the insurer, upon request, the circumstances of the loss. In fact, in accordance with article 2472 CCQ, a misrepresentation can cause the insured to be deprived of any indemnity. However, the Court of Appeal has affirmed that not all false representations automatically deprive the insured of its rights.
In Bureautique Nouvelle-Beauce, Justice Baudouin wrote on behalf of the Court:
“Ce que Technocopie et Bureautique Nouvelle-Beauce ont donc voulu faire était de cacher le paiement d'une somme de 2 500 $ comptant, paiement qui pouvait être suspect aux yeux du fisc. Ceci étant acquis, je ne puis partager l'opinion du premier juge à l'effet que la déclaration sur la fausse facture d'un prix, en lieu et place de la partie échange de services, constituait une ‘déclaration mensongère’ au sens de l'article 2574 C.c.B.C. et de la police d'assurance.
Pour qu'il y ait, en effet, déclaration mensongère au sens de ces textes, il est nécessaire que les fausses déclarations aient été faites dans le but de tromper l'assureur et donc d'obtenir de lui une prestation, un paiement ou une indemnité auquel l'assuré n'a pas droit.”
Thus, in order to be deprived of an indemnity, a misrepresentation must be made by the insured: a) with the intent to fool the insurer; and b) with the intended result of obtaining an indemnity that the insured would otherwise not be entitled to.
9. National Bank of Greece (Canada) v. Katsikonouris,  2 S.C.R. 1029, J.E. 90-1410
The issue of an insured’s false declaration can have a significant impact not only on his own rights, but that of third party beneficiaries of the insurance policy.
The Supreme Court of Canada in Katsikonouris found that the insured was acting as mandatary for the hypothecary lender and created a separate and distinct contract for the benefit of the lender.
“As intimated above, it is only a matter of common sense that mortgagees will wish to effect insurance on their insurable interest so as to ensure that the validity of their contract with the insurer does not stand to be affected by anything the mortgagor might do, and as we have seen, clearly one option for the mortgagee who wishes to effect such coverage is to take out a separate policy on a separate piece of paper. It is, of course, at the instance of the insurer that mortgagees do not, in fact, make this trip to their insurer's office to effect independent policies on separate pieces of paper. In effect, the insurer represents to mortgagees that they can save themselves the trouble since the insurer will ‘engraft’ this separate and distinct contract on the policy of the mortgagor. Given this representation on the part of the insurer, it is only fair to conclude that mortgagees will assume that insuring by means of the standard mortgage clause offers all the advantages of a separate and distinct contract evidenced by a separate piece of paper (the separate and distinct contract all the cases rejecting Hastings counsel mortgagees to obtain) but without any of its disadvantages, i.e, the trouble of having to obtain and deal with that separate piece of paper.”
As a result, the majority of the Court found that the insured’s misrepresentation could not affect the lender’s rights:
“I conclude that by the terms of the standard mortgage clause the insurer has represented to the mortgagee that it will decline to set up as against the mortgagee any omissions and misrepresentations made by the mortgagor in effecting coverage for the mortgagee and which, by the ordinary application of the law of mandate, might otherwise be imputable to the mortgagee. Any other interpretation would, in my view, fail to concord with the reasonable expectations of the parties as to the coverage offered by the standard mortgage clause, and, indeed, by making the insurance of the mortgagee derivative to a certain degree on the course of dealings between the mortgagor and the insurer, would strike at the very raison d'être of the standard mortgage clause.”
10. Utica Mutual Insurance Company v. Aspler, Goldberg, Joseph Ltd., 2008 QCCS 3811
In putting into practice the insured’s duty to disclose the circumstances of the loss, insurers often make use of the statutory examination. This examination, similar to an examination on discovery, is held before a stenographer and allows the insurer to obtain details that go beyond the insured’s declaration of loss.
However, despite the popularity of this procedure, in Utica, Justice Francine Nantel found that the insured cannot be compelled to submit to such an examination:
“ Avec égards pour l’opinion contraire, une déclaration sous serment diffère grandement d’un interrogatoire statutaire. Il est vrai qu’en pratique, l’interrogatoire est un mode retenu par les assureurs afin de connaître les circonstances de la réclamation, mais l’assuré n’a aucune obligation légale de s’y soumettre.”
Although the courts have often repeated the principle that an insurance contract requires the highest degree of good faith from the parties, there remain limits as to what can be required of the insured pursuant to this duty.
Therefore, an insurer that wishes to proceed to such an examination would be prudent to stipulate this requirement as a term of the policy, rather than rely on liberal interpretation of the “good faith obligation” of the insured.