10 Essential Judgments in Insurance Law

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…’”

3.      
Baril v. L’industrielle,
Cie d’assurances sur la vie, J.E.
91-498 (C.A.)

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., [1990] 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:

“[3]  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., [1987] 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:

“[79]  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, [1990] 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:

“[38]  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.