Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Insurance Law – May 4
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a mixture of contracts, torts, family law, legal ethics
what do we do about things we consider as being ‘risky’?
Readings:
o They’re all there but you don’t have to read every single word. She’ll be
covering the stuff in class.
Exam is closed book
o You need to know the cases though. Use mnemonic devices!
o Questions will adjust as a function of it being a closed book
o Will be straight forward
o You will be given the CCQ dispositions
The law of insurance originated in England  it is very much an AngloAmerican development
Life is risky; some of us deal with risk better than others
o Some are risk averse, risk neutral and risk seekers
Insurance is a knowledge-based enterprise
o Expression and dissemination about the information about risk is an
important element and it is asymmetric
Risk is associated with uncertainty
o Something might happen but the element is uncertain
o i.e. life insurance. Yes death is certain, but the timing is uncertain.
Risk is the probability that an uncertain event which might cause one harm will
occur
o Harm can be harm to our patrimony, bodily integrity
Tolerance for this risk varies
o Risk averse people are more upset by a marginal loss in the value that
they have rather than the satisfaction that comes with a gain
 Are willing to take a lower sum of money when it is certain rather
than a higher sum of money when it is uncertain
o Risk neutral people are neutral on the above
o Risk seekers prefer uncertain outcomes to certain ones; they are the ones
who are willing to ‘bet the store’
People aren’t wholly risk-seeking or risk-averse; in certain situations, one may be
risk seeking rather than risk averse, i.e. 50% of 2000 vs. certain 1000. Perspective
changes if it is referring to a fine rather than a reward.
Purchasing insurance also has social reflections independent of the calculation of
the event happening at anytime
Problems with savings as a means of aversion to a probable negative outcome
o May not cover the loss
o It may be too much
o So we might not be using the money most efficiently by saving as a way of
mitigating an uncertain event
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
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o Thus, no real correlation between the amount we save and the possible
loss
Another way of mitigating an adverse event is by assistance (charity)
o Ad hoc: something happens and you’re scrambling
o It’s discretionary: not everyone gets it / has access to it
o Temporary
o Rarely enough
Element of mutuality
o An underpinning of the very early forms of insurance
o Idea of mutual self-help
Example:
o Person owns a house of $100K with 1% chance of it burning down
o Expected loss = $1K
o For the individual, its either $0, or $100K
o Individual would be willing to pay an amount of money to eliminate the
zone of uncertainty of $99K ($100k-1K)
o What the person is willing to pay for this peace of mind is the premium
Another example:
o We have 5 houses worth $100/each
o Probability that 1 house will burn each year
o Therefore, 1 owner will lose a house but uncertain as to which one
o Each owner could contribute $20/each; and add more to incorporate
administration costs and profits
o There is an assumption here that the events will be random
o You can see in this example the concept of mutuality: each individual is
simultaneously an insurer and insured
o What the $100 is in this case is the indemnity of the value of the house
 security or protection against a loss or other financial burden
 it’s not a way of making money! The idea is that you are put back
in the situation you were with respect to the thing that was lost
In the real world, insurer and insured are separate entities
Insurance contract not normally considered to be an adhesion contract
o For a contract to be treated as a contract of adhesion, it must be presented
on a standard form on a "take it or leave it" basis, and give one party no
ability to negotiate because of their unequal bargaining position.
Also NOT considered to be a consumer contract
Insurance is about indemnity (security or protection against a loss or other
financial burden)
o Easy to visualize with loss of a house but what about life insurance?
 The sum to be paid is determined in advance
 The premium is entered into the pool in which the life is insured
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
We don’t value the life in the same way as in other forms of
insurance; you contract for a certain amount and at death that is
paid to you.
o What is the point of life insurance?
 It became popular in the 19th century because there weren’t many
ways of savings; people did not earn very much. It initially grew
out of as a poor persons way of saving.
o Some life insurance policies have a little reserve that you can tap into
while you alive
Difference between insurance and tortious evaluation is that insurance is done in
advance
Types of insurance
o Life insurance and health insurance
 Related to the person
o Damage insurance to property and third party liability
 Considered to be insurance to property, patrimony, etc.
 “damage insurance” “liability insurance”
 this type of insurance comes on top of a Tort regime: insurance that
would compensate my patrimony for damage I may cause to
another
 intentional act of the insured is a sure ex-ne to recovery
Moral Hazard
o Our actions become more reckless or less careful when we know we are
insured
o How to insurers counter this idea?
 Incentivizing good behaviour
 Smoke detectors in your house
 Deductible (only for damage insurance)
 In an insurance context, you may be insured for the value of
X but the first $500 you have to pay yourself
 You know the deductible in advance
Key Words
o Indemnity
o Risk
o Premium
o Insurer
o Insured
J. Lopez: Why did she insure her ass?
o Some concern over weight loss or something that would cause her behind
to get smaller
o Her policy would likely exclude factors that would be under her control
(i.e. she stopped eating and her behind got smaller)
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Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
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o It may be likely tied to her income; perhaps her income is correlated to her
rear-end
o You can only not insure things against public order
o Salacious
The more adverse the outcome, the higher the premium
Back to Life Insurance
o Payment of a premium which is calculated, in an actuarial manner, on the
basis of life expectancy plus the state of health of the individual
o Insured and policy holder may be same in some instances
o Beneficiary is the one who receives the payout
o The relationship between the life insured and the policy holder is that
there has to be an economic interest or relationship such that there is more
of an interest in the insured being alive than dead
“Wagering” idea that was outlawed in late 18th century
o the loss that is out there only created by the bet; this is the difference
between gambling and life insurance. You are not related in anyway,
economically, morally, or relationally, apart from this wager
o the whole creation of loss relates only to the bet itself
Adverse selection
o Relates to the asymmetry of information available
o It is the insured who knows more about the insured than the insurer
o Are the people who go for insurance more likely to be high risk?
 Lemons market idea.
Division of powers
o S. 92 Property and Civil Rights: provincial governments largely have
legislative authority in this domain
o In QC, there is no private litigation for bodily injury resulting from an
automotive accident (not the same in other provinces). There is for
material injury, however.
o Insurance falls under this head of power because it essentially relates to
‘property’
Banking, credit and insurance industries often intertwine and interact
Hmwk:
o Read one of the two historical articles
o Generally, get the GIST!!
o We’re looking for particular things  skim and then go back to the
relevant sections after class
The Early History of Insurance Law – Vance
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Debatable whether insurance was known to the ancients; it depends on whether
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
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we take a broad or narrow definition of insurance.
There seems to be little evidence for a narrow definition of insurance, which is
similar to modern insurance, in the laws of Rome
However, a broad definition of insurance – where one party assumes the risk of
another party – is as old as society itself
Bottomry and Respondentia bonds are a form of a broad definition of insurance
where a lender of money can only claim the repayment if the ship arrives into
port safely and is entitled to a premium for assuming the risk.
Author traces hundreds of years of history to determine how insurance law was
transported into the U.K.
CML courts with highly technical and tedious rules of procedure were poorly
prepared for settling insurance disputes.
o Merchants and underwriters largely relied upon arbitrators to settle
disputes and thus avoid the CML courts.
Modern Insurance law begins in 1756 with Lord Mansfield’s appointment as
Chief Justice of the Court of King’s Bench.
Lord Mansfield understood the principles of Insurance Law and reacted quickly
to the needs of merchants.
The doctrines he established have survived all of the many changes that have
occurred in commercial conditions, and has left a complete system of insurance
law in place
The Early History of the Insurance Contract - Holdsworth
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Similar to Vance’s article: a long history/search for the insurance contract among
ancients civilizations. Author focuses on marine insurance.
o Introduction of Insurance into England was focused on marine insurance in
the court of Admiralty.
In the early 1600s a commercial tribunal was established by statute, however it
was plagued by defects.
There was no appreciable progress in UK insurance law during the entire 100
years of the 17th century. Only when Lord Mansfield came along in 18th century
do we see progress.
Early forms of life and fire insurance were also available in England, however it
was not until the 18th and 19th century that the legal incidents and consequences
of these forms of insurance were defined.
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Insurance Law – May 5
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2389. A contract of insurance is a contract whereby the insurer undertakes, for a
premium or assessment, to make a payment to the client or a third person if a
risk covered by the insurance occurs; Insurance is divided into marine insurance
and non-marine insurance.
Idea of mutuality; idea of pooling
The bigger the pool (the aggregate), the more you can take advantage of the
average
o i.e. if you flip a coin twice, you might get tails both times. If you flip it a
1M times, you’ll likely get 50/50
In Quebec, we have two categories:
o Damages
 Property, 3rd person liability
o Persons (life, accident, health)
In other provinces, insurance is classified by peril or by subject matter
o i.e. in Ontario Act: one section is fire insurance and other sections divided
into boilers and machinery
there are public and private insurers
o public: government entities which administer insurance regimes created
by the government
 employment insurance, automobile insurance, etc.
o private:
 heavily regulated industry
 what we’ll be looking at for this class
there are good arguments for privatization of insurance
o i.e. moral hazard: if people aren’t paying for it, they’ll abuse it
 i.e. health insurance: people will clog up and go to hospitals when
not really needed because its free
role of intermediary between insurance companies and the actual purchasers of
insurance is very important; their role is also a legal role
so, classification is straightforward in Quebec; in CML, it is categorized by risk,
etc.
KP Pacific Holdings Ltd v Guardian Insurance Co of Canada [2003] SCC 25 – CML –
Classification of Risk – Multi-Risk / Multi-Peril
Facts: insured has multi-risk insurance policy, which covers fire. Hotel damaged by fire.
Multi-risk insurance is efficient from both parties’ perspectives, but makes it difficult to
classify the multi-risk policy to the rules of the Insurance Act. The insurer argues that the
applicable limitation period is one year from the date of the loss, according to statutory
condition 14 of Part 5, the Fire Insurance Part. The insured, by contrast, argues that this
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
all-risks policy does not fit under Part 5, and falls instead under the general provisions
of Part 2, where the limitation period is one year from filing proof of loss.
Issue: Should multi-risk insurance be classified under rules on fire insurance or
general provisions?
Held: General provisions, as it cannot be shoehorned into fire insurance.
Reasoning (McLachlin, C.J.)

Neither the language in Part 5 nor the history of that provision supported the
conclusion that the Legislature intended a multi-risk policy to fall within Part 5.
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Insurance Act lays down rules, including limitation periods, based on different and
discrete categories of insurance.
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The outmoded category-based Act contains rules based on the old classes of
insurance. The newer comprehensive policies are difficult if not impossible to fit into
the old categories.
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It would be highly salutary for the Legislature to revisit these provisions and
indicate its intent with respect to all-risks and multi-peril policies.
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Options to deal with multi-risk insurance include: chop up policy, rank the
perils, or consider perils to be incidental and expel from discrete categories. Each
has it’s own weaknesses.

Multi-peril policies do not fit into Part V (Fire Insurance) of the Act, It follows that
comprehensive policies are governed by Part 2, which is of general application.
Accordingly, we conclude that the limitation period of one year from filing proof of
loss applies, and that the appellant's claim is not statute-barred.
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Furthermore, the fact that the contract specifies a limitation period shorter than the
one in Part 2, does not oust the longer limitation period as the Insurance Act does not
permit the insurer to substitute contractually harsher terms than those provided in
Part 2.
Ratio: Multi-risk insurance policies cannot be shoehorned into discrete classes of
insurance and must be governed by general provisions of the Insurance Act.
Comments:
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Insurance Act says you cannot include provisions in insurance Ks that are harsher
on the insured than the substantive law. (cf. CCQ 2414).

SCC found the policy fell into Part II and the K was saved.
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Does KP Holding apply in other provinces?
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Can a shorter provision be put in where there is no statutory restriction?
Problem of classification in CML is a live problem.
Class Notes:
Facts: Insured hotel was damaged by fire. Insurer denied payment. Insured brings an
action.
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in 2012, there were modifications to the BC insurance act to respond to the
classification in this case
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
This was a multi-risk policy
o problem was that where is this policy classified?
o Different sections of the act have different limitation periods
 problem was that for fire, you had one year from the date of loss;
but for other types of insurance claims, you had a year from the
filing of the proof of loss
Timeline: date of loss  proof of loss  filing of the claim
Thus, the BC statute was ill-equipped to handle this comprehensive insurance
policy
Courts looked to the purpose of the contract (multi-risk insurance policy) and
ruled that insurers cannot make it harder for the insured to recover. This would
be against public order.
Does it apply to other provinces?
o Generally yes.
Does it apply to other provisions as well, i.e. more than limitation provisions?
o Not really answered yet…
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BC Insurance Act
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Limitation of actions
23 (1) An action or proceeding against an insurer in relation to a contract
must be commenced,
o in the case of loss or damage to insured property, not later than 2
years after the date the insured knew or ought to have known the
loss or damage occurred, and
o in any other case, not later than 2 years after the date the cause of
action against the insurer arose.
(2) An action must not be brought for the recovery of money payable
under a contract of insurance until the expiration of 60 days after proof, in
accordance with the contract
o of the loss, or
o of the happening of the event on which the insurance money is to
become payable,
o or of such shorter period as may be set by the contract of insurance.
You see the difference between the date of loss and knowledge of the loss?
This act is a major overhaul of what was there before
Now we move to insurance of persons:
o Individual:
 2392. Insurance of persons covers the life, physical integrity or
health of the insured; Insurance of persons is divided into
individual insurance and group insurance; Group insurance of
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persons covers, under a master policy, the participants in a
specified group and, in some cases, their families or dependants.
 Straight-forward
o Group:
 Usually structured as a master policy
 i.e. employers, McGill, etc.
 So insurer  master policy  members of the group (adherents)
 It’s a benefit for adherents since policy is cheaper, and benefit for
the master policyholder because they get a better workforce (or
student body) (i.e. if its health insurance: healthier workers!)
Another problem of the classification of insurance is what fits into insurance?
Grey vs. Kerslake - 1957 CanLII 21 (S.C.C.) [1958] S.C.R. 3 - Classification of Life
Insurance – Annuity is not life insurance
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Facts: Dr. Kerslake makes payments into a fund to provide monthly payments after
he reaches 60. In the event of his death before 60, his contributions would be
returned in monthly installments to his named beneficiary. He names his current
wife the Plaintiff, Mildred, as the beneficiary. He later divorces her, and remarries
2nd wife (Allison) and makes the change to declare her the beneficiary. He dies, and
Allison receives monthly payments. Mildred brings claims that she should be
entitled to monthly payments and not Allison
Issue: Whether contract one of life insurance governed by the Insurance Act, i.e.
Should the annuity be characterized as life insurance, such that the Insurance Act
applies and Mildred should receive the payments as legal beneficiary?
Held: NO, annuity is not life insurance, and Allison gets to keep the money
Reasoning:

Court said there was no risk to fund, and there was merely a return of
payments, like a pension. No risk means this is not insurance.
Ratio: Annuity is not life Insurance and not subject to the Insurance Act.
Lamed says this is wrong.
Comments:

Grey v Kerslake – is an annuity insurance? YES CCQ 2393 says it is life
insurance.

Insurance Act did not permit the beneficiary being transferred from wife to a
subsequent wife without the first wife’s permission.

Court said this was not insurance, and therefore the change of beneficiary is
ok.
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Court said there was no risk to fund, and there was merely a return of
payments, like a pension. No risk means this is not insurance.
This is wrong, b/c there was a risk. If the person outlived their contributions they
would keep receiving payments and the fund would therefore run out of his
premiums.
Class Notes:
Facts: Association fund. Undertook to make fixed monthly payments to each
member when he or she reached the age of 60 (also some provisions in case of death
prior to 60). Mr. K named his wife, Mrs. K, the beneficiary. He changed beneficiary
afterwards to his girlfriend. He got a divorce in Idaho – but there was no divorce in
Canada at that time. Thus, he was not validly remarried to the new woman.
Therefore, this becomes an insurance question.
Issue: Is an annuity insurance?
what is an annuity?
o You set aside a sum of money (monthly or whatever) and you receive a
payout when you reach a certain age
o RRSP
 You don’t pay taxes when you are contributing; you pay taxes
when you take out
 At age 71, RRSP transforms into an annuity
 This means that you are obliged to draw out a certain portion
every year and pay tax
Outcome: it is not insurance; consequence was that the change in the insurance was
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Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
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why wasn’t it insurance?
o Courts stated that there was no risk; insurance is based on the risk of
uncertainty. The only risk attached to this is how the premium is invested
(it may go up or down). If death is before 60, you still get the money. If
this is insurance, than every pension scheme would also have to be
categorized as insurance.
As for the divorce in Idaho: generally, legal acts validly performed under other
jurisdictions would be recognized in private international law. However, usually
for this to apply, the individual must be domicile in that jurisdiction.
In life insurance, the insurer runs the risk that the insured will die before
covering the expected cost of the payout
o Annuity is the flip-side of this
The result of this case was that many provinces adjusted their insurance acts to
specifically include annuities within the definition of life insurance
2393. Life insurance guarantees payment of the agreed amount upon the death of
the insured; it may also guarantee payment of the agreed amount during the
lifetime of the insured, on his surviving a specified period or on the occurrence
of an event related to his existence; Life or fixed-term annuities provided by
insurers are assimilated to life insurance but also remain governed by the
chapter on Annuities. However, the rules in this chapter that apply to
unseizability take precedence.
Remember, life insurance initially was for poor people. It was so they’d have
something to rely on in case of rainy days; it wasn’t really intended for rich
people initially.
Formation of the contract
o La proposition
o In insurance we have: Offer, counter-offer and acceptance
 You make the initial application to the broker, broker puts it out to
the market and then he comes back to you and says that this
company accepts your offer
 So you rely quiet a bit on the intermediary
 The contract is formed upon acceptance by the insurer
 But the insured can reject the premium price offered by the insurer,
even though the contract is formed
 You are insured starting from when the insurer accepts the
application
 Offer can be verbal from the prospective insured party
 This is how it works: a prospective insured party makes an offer to
purchase. The insurer then counter-offers. The prospective insured
party can accept or reject this counter offer. If accepted, the
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acceptance is deemed to have been at the time the insuring party
made the counter-offer.
 2398. A contract of insurance is formed upon acceptance by the
insurer of the application of the client.
o SLIGHTLY DIFFERENT RULE FOR LIFE INSURANCE
Let’s throw a hammer in the mix: what about cases where the acceptance by the
insured creates the contract
o Travel insurance
 Insurer is really the offeror here
Can a policy contain a clause that states that this damage insurance contract will
take effect 15 days after you receive the policy?
o This is less advantageous for the insured
o You are not allowed to have harsher conditions than the code provides
 2414. Any clause in a non-marine insurance contract which grants
the client, the insured, the participant, the beneficiary or the
policyholder fewer rights than are granted by the provisions of this
chapter is null; Any stipulation which derogates from the rules on
insurable interest or, in liability insurance, from those protecting
the rights of injured third persons is also null.
2399. The policy is the document evidencing the existence of the contract of
insurance; In addition to the names of the parties to the contract and the names
of the persons to whom the insured sums are payable or, if those persons are not
determined, a means to identify them, the object of the insurance shall be set out
in the policy, together with the amount of coverage, the nature of the risks
insured, the time from which the risks are covered and the term of the coverage
as well as the amount and rate of the premiums and the dates on which they are
due.
o Policy is not the contract itself; it is merely evidence
o The contract is the meeting of the minds
CML provisions on offer and acceptance
o Ordinary principles of contract law apply with respect to formation
o There has to be valuable consideration. Normal offer and acceptance.
Most CML provinces contain delivery provision
o Deals with that situation which we have already said that the payment of
the premium does not delay the coming into force of the insurance
Hadley Shipping JE 80-566 – CVL –
Delineates classic elements in these type of problems – Formation - Look to intention of parties
to find scope of Insurance K. Application prevails over policy
F: A South African ship carrying sugar to Montreal stops off in Quebec City to unload a
portion of its cargo. The ship was overloaded and was taking in water. The offloaded
sugar was stored outside and a tarp protected it from the environment, in accordance
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
with the customary rules of the trade. Dockers checked daily to ensure the tarp was
properly covering the sugar. Following a strike, the tarp degraded and no longer
effectively protected the sugar. A portion was lost due to (1) wind and rain; (2) quality
degradation caused by a lower sucrose level; (3) loss caused by the transfer of sugar
from the ship to the dock. The ship owner had taken out an insurance policy (oral) with
Boyd, an authorized agent, against the risk of loss due to wind. The policy was
syndicated (six insurers took on various % of the total risk, between 5-25% each). The
broker had told the ship owner that the insurance had been procured. The written
policy differed from the oral contract: an exculpatory clause was inserted such that loss
due to windstorms and hail was not covered. The insurers refused to pay the claim.
I: Does the exculpatory clause have effect?
Held: No. Parties intended to cover wind damage.
Reasoning:
1. A written K is evidence of a K. However, the actual terms of the K can differ from
the written terms of the policy.
2. Discrepancies between the application and policy are resolved in favour of
application (prevails), unless the insurer has in a separate document indicated the
discrepancies to the client.
 A written K is evidence of a K. However, the actual terms of the K can differ
from its written terms.
 The court will determine the terms of the K based on a contextual analysis, and
the real intention of the parties and the spirit of justice.
 The principles of good faith and equity are applied to an insurance K, even when
a particular clause (in this case, an exculpatory clause) is expressly stated.
 In this case, WINDSTORM is not defined, so the “plain meaning rule” applies.
 The ship owner contracted with the agent for the purpose of insuring risk against
loss caused by wind and rain.
 The agent knew that this was the reason for which insurance was being taken
out.
 The syndicate insurers had evaluated the total risk of loss due to damage
caused by wind.
 The broker confirmed this to the insured.
 So everyone knew that the insured wanted insurance against wind damage. The
error by the broker resulted in an evident error and contradicted the common
intention of the parties. As the broker is the agent of the insurance company (he
had the authority to bind the insurance company to insured parties with respect
to their policies), the insurers must indemnify the loss caused by the wind and
rain, and the quality degradation.
 The insurers are not responsible to indemnify against loss caused by the transfer
between the ship and the dock because this was not envisioned by the parties as
being insured in the first place.
 Furthermore, there was no evidence indicating that there was a modification in
the nature / state/ use of the property
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Rules:
1. The principal (the insurance companies) are responsible for the acts of their
agents. The broker was able to bind the insurer.
2. Courts construct contractual terms based on the intent of the parties, not the
written terms of the issued insurance policy. The policy serves as evidence of
the K but is not the K.
a. This is an escape clause: who was the broker acting for? Here, he acted
for the insurer and he was bound by a relationship of mandate with the
insurer. It was his error in not properly describing the policy that
caused the dispute.
3. The basis of an insurance K is utmost good faith.
Sum up: What the hell did I pay for anyhow? You must look at the intention of the
parties to determine what the contract entails.
Additional notes: Now this is dealt with under 2400 al2.

In case of discrepancy between the policy and the application, the latter prevails
unless the insurer has, in a separate document, indicated the particulars in
respect of which there is discrepancy to the client.

The discrepancy must be oppositional, significant, not just a difference or an
elucidation. It must also be to the insurer’s advantage. Here, it is absolutely not
what I bargained for. If it is better to the insured, then it is simply a counter-offer
and there is no obligation to point it out.
But the application can be verbal, so then what happens if there is discrepancy? The
broker’s notes can serve as evidence to evaluate if there is discrepancy.
Class Notes:
Facts: Ship travelling between QC City and Montreal. Went back to QC City and left
some cargo there: raw sugar on the platform next to the port. Shipping agents decided
to leave it there until navigation opens in spring. They requested insurance for sugar
cargo left in MTL to cover any loss or damage due to wind. Broker approaches 13
insurers, 7 refuse, 6 accept (distribute the risk among 6 insurers). There’s a strike in
spring and no one can access the sugar on the port. There is rain shortly thereafter and
damage occurs to the sugar. They find that the insurance contract contained an
exclusion for wind.
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Who’s to blame here?
exclusion: what is excluded from the risk
generally courts will not consider the fact that the insured has not read the
contract properly as a mitigating factor
Point 1: the contemporary insurance contract in particular is governed by utmost
good faith (rather than just good faith)
Point 2: the policy evidences the agreement, it is NOT the agreement.
o Courts state that it is not sufficient to just look at the policy. You have to
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give effect to the intention of the parties in the case of an evident error.
Point 3: the role of the intermediary
o Can be deemed to be acting for one party or the other depending on the
particular act (sometimes on the behalf of the insured, sometimes on the
behalf of the insurer)
o In this case, the broker did have the power to bind the insuring company
 Look for indicia of authority to see if broker can bind the company.
It can serve as an indication that the broker was acting on the
behalf of the insurance company.
2466. The insured is bound to promptly notify the insurer of any change that
increases the risks stipulated in the policy and that result from events within his
control if they are such as to materially influence an insurer in setting the rate of
the premium, appraising the risk or deciding to continue to insure it; If the
insured fails to discharge his obligation, the provisions of article 2411 apply,
adapted as required.
2400. In non-marine insurance, the insurer is bound to deliver the policy to the
client, as well as a copy of any application in writing made by or on behalf of the
client; In case of inconsistency between the policy and the application, the latter
prevails unless the insurer has indicated in writing to the client, in a separate
document, the particulars of the inconsistency.
Faubert c. L’Industrielle, Cie d’assurance sur la vie [1987] R.J.Q. 973 (CA) – Formation –
Life insurance divergence assessed from the subjective belief of the insured
F: Colombe takes out life insurance for her 21 y/o son Marcel. The proposal is accepted
by Colombe on Dec 14, 1982 and the policy is issued on Dec 28. The terms of the policy
are: (1) a term insurance until Marcel reaches 65 and, (2) a complementary accidental
insurance of $30,000. The policy differs from the proposal in that it limits the
applicability of the complementary accidental insurance if the insured’s death is caused
by his own negligence (only from external violent and accidental causes independent of
illness of the insured and negligence of his part). Marcel gets into an accident; he gets
hit by a train by his own negligence.
I: Which terms apply, the proposal or the policy?
Held: The proposal.
Reasoning:
 An accident is, in the ordinary sense of the word is the notion of an unlooked for
mishap or an untoward event which is not expected or designed. The
application itself did not define the term accident.
 So the term “accident” in the proposal included accidents caused by negligence.
Thus, by the application, the life insured expected to have accidental death
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coverage.
Since the terms of the policy and the proposal differ, the proposal terms apply
per CCLC 2478: where there is a divergence between the policy and the
application, the application prevails unless the insurer has drawn the divergence
to the attention of the applicant in writing
o However, the insurer is not expected to fully describe the terms of the
policy in the proposal.
 Furthermore, it is according to the subjective belief of the insured that the
court interprets the terms of the policy (i.e. in this case, the insured subjectively
believed that he would be covered in this instance).
 Divergence is assessed from the perspective of a reasonable person (objective)
 In this case, the change (exculpatory clause for negligent behavior) is a
significant departure from the nature of the policy
Rule: Where there is divergence (and not expressly communicated), the terms of the
proposal apply. Thus, if a policy significantly differs from the proposal, a court will
strike down that change (unless it was expressly communicated).
Additional notes: Intentional fault is NEVER covered under life insurance (save and
except CCQ article to find); The term "accident" usually excludes voluntary acts and
acts of gross negligence. Is it a subjective belief that is objectively reasonable? No. It is
not particularized because this would create more instability in the law. The key
question is: is this a discrepancy? Discrepancy should be objectively defined, not
subjectively. Think 90-day delay example.
Comments: CCQ 2414 – Insurance clause cannot be more severe than the law, and is
null if it so.
2-year suicide rule: 2434. Upon the reinstatement of a contract of insurance, the twoyear period during which the insurer may apply to have the contract annulled or the
coverage reduced by reason of misrepresentation or concealment relating to the risk, or
may have effect given to a clause that excludes coverage in case of the suicide of the
insured, runs again.

Class Notes:
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Outcome here was the same as Hadley Shipping. Young man contracted for life
insurance which covered accidental death. However, the actual insurance had an
exclusion for negligence. This was not the policy for which the young man had
contracted and thus the Courts ruled in his (mother’s) favour.
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What is your application is verbal?
o Since you wouldn’t have the document which explains the inconsistency
o You’d have to go to Court!
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Robitaille v. Madill
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R explains that he has a sprinkler system which was inspected by the fire
inspectors
See next box
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Classification of Insurance
Relevant Codal Provisions
CHAPTER XV
INSURANCE
SECTION I
GENERAL PROVISIONS
§ 1. — Nature of the contract of insurance and classes of insurance
2389. A contract of insurance is a contract whereby the insurer undertakes, for a
premium or assessment, to make a payment to the client or a third person if a risk
covered by the insurance occurs.
Insurance is divided into marine insurance and non-marine insurance.
2390. The object of marine insurance is to indemnify the insured against losses incident
to marine adventure.
2391. Non-marine insurance is divided into insurance of persons and damage
insurance.
2392. Insurance of persons covers the life, physical integrity or health of the insured.
Insurance of persons is divided into individual insurance and group insurance.
Group insurance of persons covers, under a master policy, the participants in a
specified group and, in some cases, their families or dependants.
2393. Life insurance guarantees payment of the agreed amount upon the death of the
insured; it may also guarantee payment of the agreed amount during the lifetime of the
insured, on his surviving a specified period or on the occurrence of an event related to
his existence.
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Life or fixed-term annuities provided by insurers are assimilated to life insurance but
also remain governed by the chapter on Annuities. However, the rules in this chapter
that apply to unseizability take precedence.
2394. Clauses of accident and sickness insurance which are accessory to a contract of life
insurance and clauses of life insurance which are accessory to a contract of accident and
sickness insurance are governed by the rules governing the principal contract.
2395. Damage insurance protects the insured against the consequences of an event that
may adversely affect his patrimony.
2396. Damage insurance includes property insurance, the object of which is to
indemnify the insured for material loss, and liability insurance, the object of which is to
protect the insured against the pecuniary consequences of the liability he may incur for
damage to a third person by reason of an injurious act.
2397. The contract of reinsurance has effect only between the insurer and the reinsurer.
Grey vs Kerslake [1958] S.C.R. 3 – CML - Classification of Insurance – Annuity is not
life insurance (see above)
Insurable Interest
Formation of the Contract
Robitaille v. Madill – CVL – CS - 1983
F: Robitaille, the owner of a hotel establishment, had installed an automatic extinguisher system
in his kitchen at the request of his previous insurers. Some years later Madill offered to insure
Robitaille, and on August 20, 1980 an inspector and a broker went to his premises. After
inspecting the building the inspector classified the risk as "acceptable" and gave appellant the
applicable rates. The insurance application was written on the spot and accepted. The broker then
told the appellant that his coverage began that same evening. There was nothing in the
application to indicate that appellant had to sign a maintenance contract for his extinguisher
system – a requirement which was also not part of his old insurance contract. However, the
insurance policy when issued three weeks later stated in clause 8 that the extinguisher system
had to be checked at least twice a year by the manufacturer's authorized representative. When
a fire occurred in 1981 the extinguisher system did not operate correctly and the hotel
establishment sustained considerable damage. Madill refused to compensate appellant, alleging
his failure to observe clause 8 (the exculpatory clause) of the policy. Madill refuses to pay the
claim because it says the K is void ab initio or, without prejudice to the foregoing, the hotel owner
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forfeited the policy by not advising the insurer that the system was not functional (it did not
make the insurer aware of a material change in the risk).
I: (1) Is the K void because of R’s misrepresentations / concealments? No – no
misrepresentations or concealments found. (2) Did the hotel owner forfeit the policy? No.
Reasoning:
 Robitaille’s subjective belief was that the system was functioning properly; according to
his knowledge, the installation was adequate, effective and well maintained. This is the
information he gave to the inspector of the insurance company who did not notice any
problem with the system.
 R thought he had nothing to disclose because he didn’t have this requirement in his old
insurance policy with a different insurer.
 Insurer says: if we had known it was not functional we would not have insured it.
o However, R brought all the available information to the insurer.
 The exculpatory clause was in the policy, but was not in the original insurance proposal
contract (application) nor the draft.
 Also, according to CCLC 2478, wherever there is a difference between the initial proposal
and the final policy, and that difference was not expressly brought to the attention of the
policy holder (evidenced in writing), it is the term of the initial proposal that applies, not
the terms of the policy.
o To bind R, it would have been necessary for the defendants to deliver to R a
separate document indicating inconsistencies between the policy and the
application because such inconsistencies reduced the liability of the insurance
company.
 The K is formed when the Insurer receives the application, and adding new
terms to the policy is an amendment to the K.
 There is an obligation for the insured to read the policy but this does not
counter CCLC 2478
Rules:
1. Disclosure requirements: The applicable standard of requirements for disclosure is the
subjective belief of the insured as evidenced by any available information (best in writing).
The insured must make all the information known by him available to the insurer. The
policy holder is not liable for insurer’s incorrect evaluation of risk even if he has provided
incorrect or incomplete information, so long as the incorrect / incomplete information was
not provided in bad faith.
2. Where a policy differs from a proposal, the terms of the proposal apply unless the
changes were communicated in writing to the policyholder by the insurer and the
policyholder ratified the changes.
a. The burden is not on the insured to assess if there is a discrepancy.
b. The discrepancy must be disclosed in a separate document.
c. Discrepancy means significant and oppositional.
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Robitaille v. Madill – 1990 – SCC
F: Same as above, except the Quebec Court of Appeal had overturned the decision.
I: Same as above.
R: Respondents had a duty to compensate appellant. Under art. 2476 C.C., an insurance
contract is formed upon the insurer's acceptance of the policyholder's application. Since here
this application, which was accepted on August 20, 1980, contained no mention of the
requirement contained in clause 8 of the policy, namely inspection and maintenance of the
sprinkler system, in principle this condition forms no part of the insurance contract. However,
assuming that the condition is part of the contract and there is a resulting inconsistency,
art. 2478 C.C. must be applied. As respondent insurers did not inform appellant in writing of
the inconsistency between the policy and the application, the latter is evidence of the insurance
contract and its content.
Rules:
1. Application of CCLC 2476 and CCLC 2478
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Insurance Law – May 6
Kaperonis v. Standard Life – CVL – SC – Proceedings
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Plaintiff’s grounds are that the defendants are liable under the temporary
insurance certificate and under actual policy and are liable for negligence
There is an argument over who’s agent Simeonidis, the insurance broker, is
Exhibits:
o P-1: Plan details
o P-2: Application by K
o P-6: Standard life insurance policy for K’s daughter (Critical Illness)
Class Notes
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As you can see, a case turns on the details!
o The facts drive the attack you are going to take
Facts:
o Mr. K took out critical illness insurance for his daughter. His daughter
was diagnosed with Cancer within the 90 days moratorium period.
o Fulfills all the requirements
o Receives the policy sometime in the following year
o In March, daughter is diagnosed with Stage 4 type of cancer
Issue:
o By march 20th the question is if Mr. K is within the 90 days or is there any
other reason why the insurance co. is required to pay
Arguments by the Insured
Arguments by the Insurer
o 90 day period: Mr. K has previous policies with similar clauses.
 This argument was rejected
What was the ultimate strongest framing of the case?
o There was a discrepancy between the application and the policy.
Furthermore, there was no writing that indicated the discrepancy. Thus,
the insurer is out of luck at having not produced the writing.
o This moratorium period was not mentioned in the application
The argument then becomes, was there a discrepancy / divergence?
o You have to consider the reasonable expectation of the insured when
taking out the policy  objective standard (reasonable by definition is an
objective standard unless qualified!)
o Divergence isn’t simply a difference in wording or a divergence in the
extent of the information between the application and policy (i.e. detailed
expanding information in the policy where the application was less dense)
o For there to be a divergence, there must be something: Oppositional,
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contradictory, or anything that would negate the ultimate expectation
and intention of the insured in taking out the insurance
o Ref. para. 12 of Faubert: if it is a substantial alternation or a profound
modification to the substance of what is being contracted
 Element of surprise
 Introduces a subjective element
 Lamed feels that this case may open up the door to defenses
based on the individuals reasonable expectations founded
on a subjective element
CCQ 2400. In non-marine insurance, the insurer is bound to deliver the policy to the
client, as well as a copy of any application in writing made by or on behalf of the client;
In case of inconsistency between the policy and the application, the latter prevails
unless the insurer has indicated in writing to the client, in a separate document, the
particulars of the inconsistency.
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Now we’re moving on to another topic: insurable interest
2418. In individual insurance, a contract is null if at the time the contract is made
the client has no insurable interest in the life or health of the insured, unless the
insured consents in writing; Subject to the same reservation, the assignment of
such a contract is null if the assignee does not have the required interest at the
time of the assignment.
o You have to have greater interest in the person being alive than dead
o There should be some economic interest (see 2419 CCQ)
2419. A person has an insurable interest in his own life and health and in the life
and health of his spouse, of his descendants and the descendants of his spouse,
or of persons who contribute to his support or education; He also has an interest
in the life and health of his employees and staff or of persons in whose life and
health he has a pecuniary or moral interest.
o So has economic grounding and a moral one
If no insurable interest, the contract is null!
2481. A person has an insurable interest in property where the loss or
deterioration of the property may cause him direct and immediate injury; It is
necessary that the insurable interest exist at the time of the loss but not necessary
that the same interest have existed throughout the duration of the contract.
o When you insure, you have to have interest in the property. If there is a
loss, you also have to have an interest in the property. But it does not
have to be the same interest.
o In what cases would the interest change?
 An owner of a building who sells the building with a balance of
sale. The collateral for rest of the money is the building. Thus, you
still have an interest in the building.
o If the insurable interest is over in the life of the contract, than the
insurance contract is also over
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o Insurable interest is not the same thing as value  it means if one has
some pecuniary connection, or legal or equitable rights over the thing
such that I might suffer pecuniary loss if the thing goes
o What about if you know your aunt will bequeath you a home when she
passes. Will you have an insurable interest in this home?
 No, all you have is a possibility, a hope
 And it also hasn’t transferred in your patrimony
Do we need insurable interest in liability insurance?
o We don’t have a requirement. For third party liability, the interest is
intrinsic. The insurable interest is in protecting our own patrimony. Thus,
there is no need for insurable interest in liability insurance because its
intrinsic in us wanting to protect our own patrimony.
Kosmopoulos v Constitution Insurance (1987) 1 S.C.R. 2 – Insurable Interest Test ;
Pecuniary Interest (Factual expectancy test)
Facts: man operates business as sole proprietorship, and then transfers all assets to a
corporation, which he operates as sole shareholder. Fire destroys property and assets,
insurance company refuses to pay policy on basis the insured has no insurable interest
in the goods. The property after incorporation essentially went from being ‘owned’ by
the sole proprietor, K, to being owned by the company.
Issue: Can a sole shareholder have an “insurable interest” in the assets of that
corporation? Whether there is an insurable interest here.
Held: YES.
Reasoning:

Does Macaura Test apply? REJECTED - too rigid to deal with contemporary
economic reality.

Test for “insurable interest” is a debate b/w legal/equitable interest or pecuniary
interest.

Concern is that if insurance payments go to the shareholders, then creditors may get
screwed, as the assets of the corp. are the collateral to the unsecured creditors.

Court could choose to lift corporate veil, and treat shareholders and corp. as the
same entity, but accepting the benefits of incorporation means you have to accept
the disadvantages. Furthermore, would create distinction between single
shareholder corps and other types of corps. REFUSED

Three policies have been cited as underlying the requirement of an insurable
interest: (1) the policy against wagering under the guise of insurance; (2) the policy
favoring the limitation of indemnity; and (3) the policy to prevent temptation to
destroy the insured property.

Pecuniary interest test satisfies the policy reasons. Thus, “FACTUAL
EXPECTANCY TEST” Accepted
o “Legal and Equitable Interest Test” from Macaura rejected and should be
dropped.
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Factual Expectancy Test:

“Insurable Interest” exists if an insured can demonstrate, "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.
Ratio: Factual Expectancy Test replaces legal and equitable interest test to determine
insurable interest. Shareholders can have an insurable interest in the assets of a
corporation. Mr. K had an insurable interest in the assets and he was “so placed with
respect to the assets of the business as to have benefit from their existence and prejudice
from their destruction”. He is entitled to recover under the insurance policy.
Class Notes:
Facts: Owner of a spring leather shop. Sole proprietor. Incorporates and now sole
shareholder. Then, however, carried on business as if he was a sole proprietor. After a
fire destroyed his goods, the insurer refused to pay him saying that the destroyed
property was owned by the company and thus he had no insurable interest in the
property.
Issue: what is insurable interest? What do you have to have?
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precedents to the case stated that you had to have legal ownership in the
property to have an insurable interest
Courts refer to Crawford in which the judges debate the nature of insurable
interest
o One judge says: Moral certainty of advantage or loss
o Other says: legally ascertainable rights
What’s the problem of lifting the corporate veil in this situation?
o It’s cherry picking: you want to lift when its in your favour but not when
it is against you
Talks about Macaura v Northern Assurance Co Ltd – CML
o Corporate veil case
Three public policies on insurable interest not interfered with insurable interest
being based on factual expectancy of benefit or loss: gambling / wagering,
limitation of the indemnity such that the person wouldn’t have gain, and the
policy that there is no incentive for you to destroy the goods in question to attain
a gain
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So getting insurance on a significant unsecured transaction is legally possible,
however it is not an economically sound business decision
A bank has insurable interest on their secured transactions
o Thus, the owner and the bank can have insurable interest on the same
property. However, this would only be one policy. Yet these will be two
different contracts (remember, policy evidences the contract, it is not the
contract)
o It is a separate insurance arrangement inside the policy for the bank
 Thus, the deliberate act of the insured of let’s say torching his
building doesn’t prejudice the claim of the bank; otherwise,
contract wouldn’t be commercially viable
back to formation
formation is slightly different in the case of life insurance contrasted with other
insurance contracts
2425. Life insurance takes effect when the application is accepted by the insurer,
provided that it is accepted without modification, that the initial premium has
been paid, and that there has been no change in the insurability of the risk since
the application was signed.
Life insurance:
o Application (first $ paid)  …[risk assessment]…  acceptance
o Risk assessment is mostly in the form of medical assessment
“that there has been no change in the insurability of the risk”
o if there has been a change in the insurability of the risk, doesn’t matter if
the person dies of another risk apart from the risk which could have
occurred during this risk assessment period – the individual will still be
barred from recovery. This is because the insurer has issued a policy based
no a specific risk profile.
Laratta v Peace Hills Gen Ins; Ab KB, Insurable interest: at transfer of ownership not
at time of possession.
F: L sues P for payment under a contract of insurance between the parties, which L
purports covered the loss resulting from the theft of a ’94 BMW. P says that L is not
entitled to payment because he did not have an insurable interest in the BMW at the
time it was stolen.
Issue: Does Laratta have an insurable interest in the car?
Held: YES.
Reasoning (Moore J.):

validity of an insurance contract depends on the interest the insured has in the
subject matter of the contract; insurance contract is valid if the insured has an
insurable interest
o Factual expectancy test: “Interest does not necessarily imply a right to the
whole or part of the thing, nor necessarily and exclusively that which may be
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the subject of privation, but the having some relation to, or concerning 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. And where a man is so circumstanced
with respect to matters exposed to certain risks or dangers, as to have a moral
certainty of advantage or benefit, but for those risks or dangers he may be
said to be interested in the safety of the thing. To be interested in the
preservation of a thing, is to be so circumstanced with respect to it as to have
benefit from its existence, prejudice from its destruction. The property of a
thing and the interest devisable from it may be very different; of the first the
price is generally the measure, but by interest in a thing every benefit and
advantage arising out of or depending on such thing may be considered as
being comprehended.”

Ownership of the good passes at the point in time in which it is the intention of the
buyer and seller for it to pass
o Held: ownership did transfer between men because they intended ownership
to transfer.

Factual Expectancy Test of Kosmopoulos is upheld.

Not necessary to show legal ownership in order to support an insurable interest
o There is no statutory condition in the Insurance Act which states that a person
must be an owner before insurance is payable.

When an “insurable interest” suffers a loss, there is a presumption in favour of the
insured

The finding of ownership may be helpful in determining an insurable interest, but it
is not determinative.

In this case, L is clearly the owner of the car and thus has insurable interest. In any
case, he clearly benefited from its existence and was prejudiced by its destruction.
Ratio: If a person would suffer a loss if certain property was lost, then he or she has
an insurable interest in that property. [56] An insurable interest is: “having 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.”
Insurance Law – May 7
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we’ll continue to discuss CCQ 2425
Recall: 2425. Life insurance takes effect when the application is accepted by the
insurer, provided that it is accepted without modification, that the initial
premium has been paid, and that there has been no change in the insurability of
the risk since the application was signed.
o We have this thing in life insurance is that the formation at acceptance and
taking effect aren’t always consonant as they do more readily in damage
insurance because of the question of the assessment of the risk which
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involves the medical exam (and sometimes this question of the payment
of the first premium)
o Thus, this period is problematic. Temporary insurance has been
developed to deal with this period.
Dépanneur Centre-ville (1980) v. Union du Canada Assurances-vie (1985) C.S. 135 –
Life Insurance Formation
F: 2 partners buy a downtown dep. They each agree that the partnership will take out
life insurance for each partner. On Dec 20 1980, they take out life insurance on Bussières
(one of the partners). According to the proposal, the insurance is conditional upon
payment of at least 15% of the annual premium and a medical evaluation. Bussières
passes the medical exam, which took place on Dec 31 1980. He had also paid up the
required 15%. So the insurance took effect. On Jan 2, he suffered a heart attack and was
hospitalized for 4 days. The policy was issued on Jan 23 and delivered to the broker.
That night, Bussières dies. Union refuses to pay the indemnity because it says that the
definitive policy was void ab initio because Bussières failed to disclose material
information. Agent is acting for the Insurer. There is a certificate / interim coverage
policy that is granted.
Dec 15: Problem in left arm. Diagnostic = muscular.
Dec 20: Application, interim coverage, $150 payment for the premium.
Dec 31: Medical exam: myalgia. Fancy word for pain. Patient is okay.
Jan 2-4: Heart failure. Goes to the hospital. Doctor later testified that he would have
never recommended acceptance of the risk.
Jan 23: Agent receives policy from the insurer. Coming into force on Jan 1.
Jan 23: Bussières dies that night.
Issue: Is the interim or definitive policy in effect? Interim (Bussieres entitled to
receive indemnity); main issue is delivery here.

If definitive policy had been in effect it could have been voided for failure to
disclose material change in health since beginning of interim policy
Reasoning:
 There are 6 conditions. See p.44.
 The suspensive conditions were all met: payment of 15% + successful medical
exam + death occurred after the exam during the interim policy.
o If definitive policy was in effect, the insured should have disclosed a
change in insurability per the 3rd condition for coming into effect of life
insurance
 Now the insurer is arguing that the K was formed but did not take effect, b/c it
was not delivered to Insured
o But there is a presumption of delivery per CCLC 2518. The presumption
creates a legal consequence. It creates a rebuttable presumption. Absent
proof, we presume the policy was delivered to the client.
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o However, the policy had not been delivered to Bussières because it was
delivered to the broker (an agent for the insurer) and there was a
condition in the policy that the full premium must be paid in order to take
effect – and it was not (p45); thus it was a conditional delivery.
 Therefore the terms of the interim proposal were in effect, since the definitive
policy was not in effect given the suspensive condition in the policy.
 Moreover, the insured has no obligation to divulge any health changes after
the interim contract takes effect (or even for the definitive policy)
o Once life insurance is in place, there is no duty to divulge changes in
health. Thus the conditional insurance is not affected by this requirement.
o But he did have a duty to divulge changes in health for the definitive
policy per CCQ 2425.
Rule: A proposal for life insurance takes effect as long as the suspensive conditions are
met. If there are changes to the health of the insured after the interim policy takes
effect, he is under no obligation to make the insurer aware of these changes, even if
the actual policy has not been issued yet. A valid interim policy is in effect even if
there is a material change of risk once the policy is in effect.
Comments:
Note in general that the requirement of disclosure for changes in risk is different in
damage insurance (required) as compared to life insurance (not required once the
policy appropriately takes effect). It’s important to point out that it is never ‘required’
per the strict sense of the term. A party just runs the risk of not having their life
insurance honoured once an ex-post facto investigation takes place after death.
Class Notes
Facts: Business arrangement. Depanneur is a business which applies for insurance on
the life of one of its shareholders. On 15th Dec. consults doctor for pain in left arm,
doctor diagnosis is muscular pain. Makes application and also gets interim coverage /
conditional insurance for $150. Medical examiner is acting on behalf of insurer; insured
informs doctor about first consultation (doctor says its fine probably nothing). The
policy received by the agent says coming into effect date Jan. 1.
Consultation (15th Dec.)---------- Application (20th Dec.) (Interim coverage /
conditional insurance)----- Medical Exam (31st Dec.)------ Hospital consultation:
diagnosis with cardiac problems (2-4 Jan.)---- Agent receives policy (23 Jan.)----23
Jan. Person dies.
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There are two things we have to think of here:
o Temporary Coverage
 Says we’ll pay if death happens before the delivery of the policy
and before the end of 60 days from the date of the coverage.
o Definitive Policy (which would have taken effect on Jan. 1)
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4 dependent conditions seem to be present. What is the key point on which we’ll
frame our problem?
o Was the policy delivered? (this will help us decide if the temporary
coverage was in force or the actual policy; if actual policy no coverage!)
How do we ascertain if it was delivered or not?
o 2426. Accident and sickness insurance takes effect upon the delivery of the
policy to the client, even if it is delivered by a person other than a
representative of the insurer; A policy issued in accordance with the
application and given to a representative of the insurer for unconditional
delivery to the client is also validly delivered.
o Agent received it on Jan. 23. Looks like we had delivery. But was it
unconditional delivery? NO! there was a ‘hold’ on the policy due to
outstanding balance.
o Thus, since the policy was not delivered, interim policy was still in effect
and the change in insurability was still in effect.
Therefore, in temporary coverage, a change in insurability does not effect its
validity. How is this allowed? Because the insurer can be more generous to the
insured, just not harsher. It also shows us that it is a separate insurance
contract and it is in place from the date of application.
Do you think 2425 would also apply in Group Insurance?
o Group Insurance: Insurer master policy  applications + 1st premium
o But no reason why it shouldn’t include group insurance
Cie d’assurances-vie Transamerica v. Toutant [2002] R.R.A. 685 – Life insurance,
interim coverage, resolutory condition
F: On May 2 1989, an application is taken for the son, paid for by the insured’s father.
The proposal states that the policy takes effect when the 1st premium is paid. It also
states that no medical exam is required, but that blood work and a urine sample will be
required forthwith (will be requested, blood work and urine sample constitutes the
medical exam). On May 12, a cheque is made out and mailed to the broker, who
receives it on the 13th. On the 14th, the son is fatally wounded. He dies on the 15th. The
son stole a car, got drunk, lost control of the car, and died. On May 25th, unaware of
this fact, the insurer cashed the cheques. The insurer then refuses to pay the claim
because the policy could not take effect since the insured was already dead on the 25th.
I: Was the interim policy in effect? Does Transamerica have to pay the claim?
Held: Yes. Yes.
R: Public order argument: An innocent beneficiary cannot be precluded from receiving
the insurance indemnity even if the insured caused his own death via criminal
activities. Secondly, payment of the 1st installment is a suspensive condition to the
policy. This suspensive condition is met when the cheque is received by the insurer. The
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cashing of the cheque is just a resolutory condition (meaning if NSF than it can void the
formed contract). Once the terms of this condition are met, the policy is triggered. A
medical exam is this case is a resolutory condition that can have the effect of negating
the contractual obligations of the insurer. In this case, there was no medical exam
required, and the blood and urine samples had not been collected. Thus, the suspensive
conditions appear to be met and coming into force takes place when the suspensive
conditions are met.
 Another condition of the temporary insurance was that it came into force at the
date of the proposal and the insurability of the party was assessed at this date
as well…
 Had the tests been collected, they could have been used to the benefit of the
insurer and discharged them of their duty to pay the indemnity according to
the provisional K.
 Had they requested it as a condition for the interim coverage, then it would
have been a suspensive condition rather than a resolutory condition.
 But even if the medical exam showed no insurability on the definitive, the
provisional one would still apply.
Rule: A medical exam can be a suspensive or resolutory condition on a provisional or
definitive agreement. Here it is a resolutory condition that, when triggered, liberates
the insurer from the contractual duties and obligations of the policy terms.
Additional notes: Look at 2425. He must be insurable. We are not concerned about the
definitive coverage, we are concerned with the interim coverage. If the insurer cashes
the cheque then it is assumed that it was cashed on the day of the cheque, its a valid
payment. Cheque was received on the 13th and he sent them off right away to the
insurer. It is the day the insurer receives it; things that are in control of the insurer.
CCQ: This case revolves around how the medical exam clause was drafted. Had the
clause been drafted as a suspensive condition on the provisional agreement, the
provisional insurance would not have taken effect and the insurer would not have to
pay the indemnity.
Class Notes
Facts: Application on May 2, 89. May 13 he gave the check for the first premium; at this
point broker gave the dad the interim cover note. May 14: son is fatally injured in a car
accident (in a stolen car). May 15: father goes to broker, gets cover note; son’s organs are
harvested and he dies. 25 May: insurer cashes the cheques. There was no medical exam
done here.
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what are the terms of the interim coverage?
o The present cover note does not guarantee any insurance until its
conditions are met. States that the payments are received subject to the
following conditions: if medical exams demanded by the company are
completed, if the company is persuaded that at the time of the application
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the person was insurable, then the policy will come into effect at the date
of the application.
o This is more towards a guarantee rather than insurance.
Why didn’t the insurer request a medical exam? Was this necessary for the
coverage to be in place? Can we reproach the insurer for not having asked for the
medical exam?
They probably didn’t ask for the medical exam because they hadn’t received a
cheque yet
But policy then came into force on May 13 when the note was issued and the first
premium paid
The wording in the cover note doesn’t say the company must demand a medical
exam
The fact that the insuring company only cashed cheque May 25 doesn’t matter.
The fact that the cheque was in the hands of the agent on May 13 constitutes
payment. They only counter-argument would be if the cheque was NSF, which it
wasn’t.
The insurer can’t hide behind the fact that a medical exam never took place
What about the criminal nature of the cause of death?
o The innocent beneficiary should not be punished because of another’s
criminal act
Let’s move to suicide!
So far the concern has been about temporary coverage and this murky period of
uncertainty
We are also concerned about suicide
o The suicide problem is a moral hazard concern; i.e. person is depressed
due to financial condition, knows he or she has life insurance and family
will be provided for, etc.
o Also, suicide is a ‘deliberate’ act
How does the law / code deal with this problem?
2441. The insurer may not refuse payment of the sums insured by reason of the
suicide of the insured unless he expressly stipulated that coverage would be
excluded in such a case and, even then, the stipulation is without effect if the
suicide occurs after two years of uninterrupted insurance; Any change made to a
contract to increase the amount of coverage is, as regards the additional amount,
subject to the initially stipulated exclusion clause for a period of two years of
uninterrupted insurance beginning on the effective date of the increase.
o So if no clause excluding suicide, insurer pays
o If there is a clause, insurer can exclude but NOT after two years
o Thus, there is an added interest in knowing what is the date of effect of
the insurance
The default position in the civil and common law were exactly opposite
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o In Common law, initially, you could not recover from suicide at all
because you can’t get proceeds from the commission of a ‘crime’ whereas
in the civil law was that you could get proceeds, unless explicitly excluded
o Current position in CML due to statute being enacted is that you can
recover if it is not in the 2 year exclusionary period (but the default
position is still different from CVL in the sense that there must be a clause
included saying you can recover for suicide after two years, otherwise you
can’t recover at all)
Chablis Textiles v. London Life Insurance Co [1996] 1 S.C.R. 160
The 2-year rule can be shortened if the Ir and Id agree to it (but it cannot be
extended). A definitive agreement can come into force on a retroactive date (so long
as the 3 conditions of 2425 are met at some point in time). Exclusion period can only
run once.
Facts:
Sept 8 1980: Id signs a $500,000 provisional life insurance policy.
Sept 26 1980: The Id and Ir agree that the coming into force of definitive policy is Sept
26 1980.
Nov 11 1980: The definitive policy is issued. It contains a “suicide” clause stating that
the policy is valid so long as the Id does not commit suicide within the following 2 years
period. Retroactive to Sept 26.
Nov 14 1980: The Ir receives the payment of the 1st premium and the insured accepts to
reduce coverage in the event of accidental death.
Jan 12 1981: The indemnity is increased from $500,000 to $1,000,000, a new beneficiary is
named, and the effective date of the policy is changed to Jan 26,1981.
Feb 9 1981: The new policy is issued.
Oct 20 1982: Id commits suicide.
Issue: When does the 2 year clock start ticking: on Sept 26, the date agreed to by the
parties as the coming into force date, OR on Nov 14, when the 1st premium is paid
and the 3 conditions of 2425 are met?
Held: On Sept 26.
Reasoning:

Normally, a definitive policy comes into force once the 3 conditions of 2425 are met
(acceptance of the provision as-is, payment of the 1st premium, no change in
insurability).
o So the coming into force date is Nov 14 1980.

However, the parties contractually agreed that the coming into force date was Sept
26.

The net effect is that the 2 year rule is, in this case, reduced (to about 1 year and 9
months) because the Ir voluntarily accepted to provide a more favorable contractual
term to the Id.
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




An insurance contract cannot be less favorable to the Id than the codal articles,
but it can be more favorable.
Suspensive conditions once satisfied can have retroactive effect, back so far as
application date, but not before.
In this case, the K is more favorable (i.e. to the benefit of the Id).
Therefore, the 2 year period runs from Sept 26 1980 to Sept 25 1982.
The Id committed suicide on Oct 20 1982, after the 2 year period, after the expiration
of the “suicide” clause.
Rule: The parties can abridge the 2 year rule if it favours the Id. Said differently, the
coming into force date of a definitive agreement can be established at an earlier date
once the 3 conditions of 2425 are met.
Comments:
2441(2) is a change to make the 2-year limit run again in the event there is an increase to
life insurance.
If the individual committed suicide between Sept. 26 – Nov. 14, there would have been
no payment since the suspensive conditions had not yet been met. But once they have
been met, nothing prevents the contract’s effective date from being adjusted to a
retroactive date.
Class Notes
We’re dealing with the problem of suicide and insurance here. There the problem was
death by suicide on Oct. 20, ’82. Thus are question date is Oct. 20, ’80. Was there
insurance at place at this time?
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Application: Sept. 8, 1980
Original policy issued: Nov. 11, 1980 (Acceptance)
Payment of initial premium: Nov. 14, 1980 (coming into force date)
However, they agreed upon a different date of taking of effect: Sept. 26
Application to change the policy: Jan., 1981
o Courts don’t find that this was a new policy; just a change to an existing
policy. The exclusion period cannot run more than once in a single
insurance contract. Over here, Courts ruled only one contract, thus new
suicide exclusion clause does not apply.
o This was changed, re: CCQ 2441 (2)
New policy issued (after medical exam): Feb., 1981
Real debate is when did the insurance policy take effect?
o It is permitted to have the retroactivity because it is more advantageous to
the insured, thus suicide is a recoverable act in this case!
If death occurred between Sept. 26 and Nov. 14, no insurance because premium
hadn’t been paid!
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Now, what about the Jan. 8 addition? Under 2441 CCQ, this amount would not
be allowed for recovery. There is an additional amount exposed to additional
risk; thus it does not make sense, from insurer point of view, to have a suicide
provision be dated back to the effective date of the original policy
So the important thing here overall is the retroactivity for all purposes of the
policy (no cherry picking!)
Blais c Cie d’assurance vie Union commerciale du Canada [2001] R.R.A. 22
Suicide 2-year clause runs continuously from agreed start date (either interim or
definitive) Art 2441
Facts: A suicide case where the insurance company refuses to pay the premium.
Oct 31 ’88: Blais signs the insurance proposal and pays the 1st premium. The “suicide”
clause (the policy is void if the Id commits suicide) terminates on 31 Oct 1990.
Blais immediately benefits from the interim policy.
Jan 13 ’89: All medical exams are passed and the definitive policy takes effect,
retroactive to Oct 31 ’88 (via a contractual term).
Dec 13 ’90: Blais commits suicide.
Issue: When does the 2 year clock start ticking, on Oct 31st ’88 or Jan 13 ’89 (if it is the
latter, then the insurance company does not have to payout because the 2 year period
is in effect.)?
Held: Oct 31st ’88. Coverage for suicide allowed!
Reasoning (J. Rousseau-Houle):

The definitive agreement was accepted on the 12th Jan. ’89. Three conditions met on
Jan. 13th.

Suicide was the 13th Dec. ’90.

The definitive agreement took effect on Oct 31 ‘88, retroactively. (cf Chablis)
o As it seems here parties favoured retroactive adjustment.

So the 2 year period started running on that date and there was no interruption
between the interim and definitive policy.

Art. 2441 requires a continuous uninterrupted period.

Unclear here how long the interim policy ran, but she finds in favour of the Insured
to find uninterrupted insurance from date of application on 31 Oct 88.
o The interim policy conditions did not mention whether it expired on the first
of the events of the two events stated (i.e. accept / rejection of proposal or 60
days), nor that the 60 days is definitive. Therefore, from the reasonable
expectation of the party, it would appear that the coverage ran until the
decision was made…

Furthermore, the term of the definitive agreement stated that it came into force on
Oct 31 ’88 (via interpretation of a contractual term) and it is the interim policy that
dissolves (the 2 policies are not “back to back,” rather the interim policy dissolves in
the definitive policy).
Dissent Beauregard:
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
Definitive Insurance came into effect 13 Jan, and no evidence that parties intended to
have retroactivity. Furthermore, temporary insurance is by definition a fixed-term
insurance and no notice of termination is needed.
Rule: The 2 year rule requires continuous coverage. Here, the definitive agreement
started on the 1st day of the interim policy (due to a contractual term) and the interim
policy dissolved once the definitive policy came into force. If the 2 policies were such
that the provisional expired when the definitive came into force, the 2 year period
would have started when the definitive agreement came into force.
Class Notes
Beauregard is the dissent.
Facts: Retroactivity. Temporary coverage. Suicide.
Application: Oct. 31, ’88
o Given replacement form and includes suicide clause and its effective date
o First question: what’s in the application? Is the replacement form in the
application or not?
Interim cover note:
o Tells us the length of time temporary insurance will be in place
o Doesn’t tell you how you’re going to choose between the dates
 Ambiguity; problem of interpretation
o Jan. 13 or could be 60 days from the cover note and we don’t know
because of ambiguity
Acceptance & Policy established: Jan. 13, ‘89
Suicide: Dec. 13, ‘90
We have here a situation where we have some temporary insurance, but it may
have come to an end before the definitive policy came into effect. If we look at
the conditions of the end of the temporary insurance, it’s either 60 days from Oct.
31, or if it takes us to the point that the new policy was accepted (or rejected). The
answer hinges on if the suicide provision was in the original application. We care
about this because of the expectation of the insured. Here, the terms of the
temporary conditions created a reasonable expectation in the mind of the insured
that there would be coverage until a decision was rendered.
Clause deemed to be in effect on Oct. 31, ’88.
Unfair to hold the insured at a disadvantage due to error of the insurer
Comment: Lamed feels like it is a bit of a weird decision.
Insurance Law - May 11
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Exam is handwritten
o Short answer questions
o Closed book; open codal materials
o Includes material up to tomorrow
Declaration of risk
o Insurance is a knowledge based industry
o We also spoke about the asymmetry of information
 Insured has the knowledge the insurer needs to cover the risk
 Thus concept of disclosure of risk is very important
CCQ 2408. The client, and the insured if the insurer requires it, is bound to
represent all the facts known to him which are likely to materially influence an
insurer in the setting of the premium, the appraisal of the risk or the decision to
cover it, but he is not bound to represent facts that the insurer knows or is
presumed to know because of their notoriety, except in answer to inquiries.
o Obligation is on the insured. Note the word materially.
o Presupposes enlightened consent and utmost good faith.
Nearly all of modern insurance law was developed when Lord Mansfield was on
the bench
Carter v. Boehm – CML – 17th Century – Declaration of Risk – Duty to Disclose
Facts:: Policy taken for one year to protect Fort Marlborough against Risk the fort might
be captured by a European army. Fort is captured, and underwriter refuses to pay
indemnity b/c insured failed to disclose circumstances which ought to have been
disclosed. Claims K was void ab initio.
Issue: Did insured fail to disclose circumstances to the underwriter which ought to
have been disclosed? In other words, do some circumstances not disclosed by the
governor to the underwriter amount to concealment which ought to void the policy
(either as fraud or as varying the contract)?
Held: NO, insured wins
Reasoning: Lord Mansfield C.J. – Parties obligated to disclose to prevent fraud and
encourage good faith

The suppression of information can void the Insurance Policy. The special facts on
which the risk is to be calculated are most commonly the knowledge of the insured
and should be disclosed. The insured should not keep back any circumstance in his
knowledge to mislead the underwriter into a belief that the circumstance does not
exist, and to induce him to estimate the risk as if it did not exist. This amounts to
fraud and the policy would thereby be void (Insurer makes calculations of
premiums based on disclosed risk assessment, and withholding information is
fraud)

Fraud equally occurs if insurer underwrites a policy which is risk-free (like a ship
already arrived)

Good Faith forbids either party by concealing what he privately knows, to draw the
other into a bargain from his ignorance of that fact and his believing the contrary.
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The question always becomes: whether there was, under all circumstances at the
time the policy was underwritten, a fair representation or a concealment, fraudulent
if designed, or, though not designed, varying materially the object of the policy, and
changing the risk understood to be run.
Scope of disclosure:
o Must disclose: special facts on which the risk is to be calculated
o Insured not obliged to disclose things the underwriter already knows or
ought to know, or speculations not based in fact.
o The insured ought to know: natural perils (ie. sea, weather), political perils.
Factual things, but speculative things.

In this case, the information not disclosed were either conditions well known by
simple inquiry and or speculation. Therefore, it does not amount to concealment.

Moral Hazard: underwriter signed the policy without asking any questions. If the
underwriter signed the K, knowing it to be void, he did so only to make a gain
thinking the K was void and knowing there was no risk of paying out. He could
have been informed about the risk of attack by asking questions.
Ratio: Parties obligated to disclose special facts on which risk is calculated, but not
obligated to disclose things the underwriter knows, ought to know, or speculation.

Class Notes
Facts: protection of risk against fort being captured by European army. It was connected
with the East India company carrying the Pepper Trade. The insured was the governor
of the Fort. 7 year was going on. Thus, they were concerned that a British fort would be
taken over. The fort was captured and governor sought indemnity. Refusal to pay on
the basis that not all relevant facts were disclosed  there was concealment: the nature
of the Fort (wasn’t really a fort but a factory or a warehouse, never intended to be a
military output), the fear of an attack by the French being known (points to a letter).
Mansfield in this case tries to point out what the insurer should have the right to know
and what the insured should have divulged.
Famous paragraph: “Insurance is a contract upon speculation. The special facts upon
which the contingent chance to be computed lie most commonly in the knowledge of
the insured only. The underwriter trusts to his representation and proceeds upon
confidence that he does not keep back any circumstance in his knowledge to mislead
the underwriter to believe that the circumstance does not exist.“
However, there are limitations to this. Insured does not have to reveal what the
underwriter already knows or ought to know, i.e. tendency towards natural perils,
political perils, and probability towards political perils. Thus, in this case, Mansfield
imputes on the underwriter the knowledge of the nature of the fort and knowledge of
the political situation. As for the insured’s knowledge of some design by the French, it
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was not specific enough to be knowledge that the insured should have divulged.
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underwriter = insurer
not all the questions in the form asked by the insurer will be considered material
by the courts
when does one have to divulge info? At the time of application
materiality can also be subjective things, depending on the type of insurance, etc.
from who’s point of view is materiality assessed? AN insurer!  CCQ 2408
o beyond subjective; what a reasonable insurer would find to be material
under the circumstances
2409 CCQ is a pro-insured provision. This idea of the normally provident
insured is a new arrival. Note it does not say reasonable. So if the insurer can
show in 2408 that a material fact was not represented, 2409 CCQ can act as a
defence
o the judge would normally decide who would be the normally provident
insured
La cie mutuelle d’assurances Wawanesa c. GMAC Location Ltee [2005] R.R.A. 25 –
CVL – existence of questions can limit obligation to disclose – CCQ 2408, 2409, 2410
Facts: insured fills out the application and answers the questions to obtain car insurance
(questions included driving infractions and other items covering a period of 6 years
going back). No questions about a criminal record. He was a previous client of the
insurer. 18 months later car is destroyed, and insurer refuses to pay on basis the insured
failed to disclose his criminal record.
Issue: Can indemnity be refused for failure to disclose criminal record not asked in
detailed questionnaire? In other words, Is the information that R withheld material?
Held: No. No.
Reasoning (Dalphond J.):

CCQ 2408, 2409, 2410
o These articles have placed on a burden on the insurer to show that the
information omitted were of a nature that would influence their decision and
has placed an obligation on the insured to behave as a normally provident
insured.

In the current case, the criminal record of the resp. was not related to driving and
was 8 years ago.

The resp. fulfilled his duty in 2409 CCQ: a reasonable person would assume that it
wasn’t relevant to disclose criminal activities not related to driving and ones that
happened so long ago. The questionnaire further reinforces this reasonableness as a
reasonable insured party could assume that the questions not asked weren’t relevant
and since the date of the questions in the questionnaire only went as far back as 6
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years, details going further back than that would also not be relevant.
General Test - Burden of Proof for failure to disclose:
1. Insurer invoking nullity must show materiality of what was not disclosed (CCQ
2408), if yes,
2. then insured has a burden of showing he disclosed what a normally provident
insured would have, and his failure to disclose was consistent with this category
(CCQ 2409).
CoA: Not unreasonable that the insurer found the criminality material, BUT Wawa
answered the questions honestly and the Criminal Record was 8 years ago, and beyond
the 6 year cut-off of the other questions.

Insurer could have asked about criminal record if they did not want to insure people
with a criminal record.

[Rule: An Insured cannot take advantage and benefit from collecting premiums and later invoke
nullity on the basis of concealment of information. The type of information that the Id has to
reveal is determined according to an objective standard. It is not limited to answering
questions. But it is limited by 2409 which is an objective standard (according to the normally
prominent insurer) but there is an element of subjectivity. It is also further limited by the nature
of the questions and what the Id can infer as being important to the reasonable insurer in the
industry. The questionnaire is supposed to hint at what the reasonable insurer considers
as being important. In the end, the “material disclosure” requirement is subjectively assessed.
Test: Is the disclosure objectively sufficient, given the Id subjective knowledge?]
Ratio: The obligation to disclose can be limited by the existence of a detailed
questionnaire. An insurer cannot take advantage of premiums, and then later invoke
nullity.
Class Notes
Facts: R leases vehicle from car dealership. Dealer assigns contract to GMAC (they
become the owner of the vehicle). R asks Wawanesa for insurance on the car. W asks
questions in their form. No questions asked about criminal record or other kinds of
convictions. R was W’s prior client and was indemnified twice before. Car was soon
after totaled. W finds out about R’s criminal record. All convictions were 8 years prior
to the seeking of insurance. W is concerned that had they known about this they might
not have insured due to moral hazard.
Despite even though the insurer asks questions on a form, the insured still has a
residual obligation (even outside the questions) to disclose under 2408 CCQ. Part of the
utmost good faith thing. Two reasons the Court gave relying on 2409: not insured to
driving infractions and was 8 years ago. A normally provident reasonable person
without experience would not have disclosed this information.
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So this case essentially states that the questionnaire can guide the scope and the
nature of the residual obligation to disclose.
o This case thus complicates even further the relationship between the
questionnaire and the residual obligation to disclose.
-
the standard for materiality is the reasonable insurer
o it is an objective standard
the limit on this is 2409 with the normally provident insured
o also looks like an objective standard with some subjectivity in it
 it is possible to argue some subjectivity by invoking it
materiality is not with respect to the questions, it is with respect to the answers
-
-
how do we measure notoriety or something that the insurer can be presumed to
know by its notoriety?
Canadian Indemnity v Johns Mansville (1990) 2 S.C.R. 549 – Notoriety, between public
and expert knowledge - CVL
F: JM is involved in the mining and selling of asbestos and asbestos products. It took
out a general product liability insurance with CI. In 1973, the policy was renewed but
later annulled by CI. It alleges that JM failed to disclose material information: its
knowledge of health risks associated with asbestosis and other diseases. JM states that
it was aware of this disease but fully and fairly represented every fact which showed
the nature and extent of the risk. In addition, JM states that CI should have known of
this because of the notoriety of the disease (which was first disclosed in the early 20th
century and an extensive medical report was made available to the public in the 60’s).
I: Whether insurer presumed to know undisclosed facts by reason of their public
character or notoriety? Did JM conceal material information? What is the threshold for
notoriety?
Yes; No; Notoriety is not what the general public knows or what experts know, but it is
somewhere in between: what a reasonable competent underwriter in the industry
knows.
R:
 Public Character and Notoriety of facts:
o The insured has an obligation to disclose all the facts that are material to the
risk, but it is not obliged under art. 2486 C.C. to disclose facts known to the
insurer or which from their "public character and notoriety" the latter is
presumed to know.
o The concept of "public character" refers to the availability or accessibility of
information, and the concept of "notoriety" must be determined with
reference, not to the general public, but to the insurer.
o The standard, however, is not the insurer in a particular case but rather a
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

reasonably competent underwriter insuring similar risks in the industry
covered by the policy.
o CCLC 2489: the description of the public character or notorious facts must be
substantially accurate - The insured will be relieved of its duty to disclose
where material facts are substantially as depicted by virtue of public
character and notoriety
o Here, the facts were accurate and disclosed by JM. CI should have known the
risk.
 It was a trainee that determining the risk.
 They did not meet the standard of the reasonable competent
underwriter.
 The Ir seems to have accepted the risk blindly.
 Therefore, they have to assume the risk.
Insured’s duty to inquire:
o The Id is entitled to assume that he is dealing with a competent Ir and that
if the Ir wants additional information, it will make that request to the Id.
o Here, if CI wanted more information, it should have asked for more
information.
Utmost good faith:
o The Id will disclose fully and fairly or risk having the contract annulled,
and the prudent insurer will ensure that it acquires a good knowledge of
the industry in which it insures or fail to do so at its peril.
Rule: (1) Public character and notoriety of facts are viewed from the point of view of an
reasonably prudent insurer operating in that particular industry. (2) As long as these
public facts are substantially accurate of the true reality, there is no duty to disclose on
the part of the insured. (3) Utmost good faith requires that the insured will disclose
fully and fairly, or risk having the contract annulled, and the prudent insurer will
ensure that it acquires a good knowledge of the industry in which it insures, or fail to
do so at its peril.
Additional notes: Does the internet and access to information have an impact on what
the standard actually is? Is the burden higher now and does the Ir have another
burden? Does this further limit the materiality of disclosure by the Id? This doesn’t
leave a whole lot in 2408.
Class Notes:
Facts: The material fact was the exceptionally high of pulmonary disease with people
who mine asbestos. The issue in this case was that the insured failed to disclose a
medical report relevant to this fact.
Issue: Is notoriety only what is in the public domain, public knowledge? Is it only for
people in the industry?
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The Courts find a middle ground between everything in the public domain and stuff
found in the industry. The Courts come up with the concept of what a reasonably
competent provider of insurance would know. In this case, the underwriting
department knew almost nothing about asbestos related health risks. Insurance
companies are expected to do their own due diligence. This argument is founded in the
notion of utmost good faith: it is not right for an insurance company to not do due
diligence and then when it comes time to pay they turn around and say “oh we didn’t
know about that so we’re not insuring you.”
Coronation Insurance v. Taku Air Transport (1991) 3 S.C.R. 622 – CML - Insurer
presumed to know the information it has within its own files ; declaration of risk
F: In 1978, Taku was insured by CI and within the 1st year of coverage, had 3 plane
crashes. CI did not renew the policy. In 1986, Taku reapplied for insurance with CI. CI
did not check their own files and entered into an insurance K with Taku. The policy
stated that it would be void if Taku had misrepresented any material facts or if the total
number of passengers exceeded the declared number of seats on the plane. Taku did
not tell CI that it had crashed 3 times in the past. Instead, they said they only crashed
once. In addition, soon after the policy took effect, Taku had another plane crash, killing
5 people (but the plane only had 4 passenger seats). CI denies coverage because the 2
conditions were triggered.
I: Is the contract void ab initio on account of misrepresentation or extra passenger
carried?
Held: For misrepresentation: No. On account of extra passenger carried: Yes.
R:
 The insurers cannot escape liability on the grounds that Taku failed to disclose its
accident record.
 While the utmost good faith doctrine as formulated in 1766 can still hold true where
the policy is for the exclusive benefit of the insured, it should not be applicable in the
highly regulated field of aviation insurance, where insurance for passengers has
been made a condition for licensing air carriers.
 Where the insurance policy required by statute or regulation is primarily for the
benefit of members of the flying public and not just the insured, the insurer must
take some basic steps to investigate the flying record of the air carrier applying for
insurance.
 At a minimum, it should review its own files on the applicant, and should make a
search of the public record of the air carrier's accidents.
 This does not place too high a burden on insurers because it is easy to get this
information.
 However, the Ir are entitled to rely on Taku’s representation of the number of
passenger seats. It can only be aware of that if the owner tells them.
 Therefore, the policy is void ab initio and since the Id violated this term, the K is
void.
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The contract term which limited liability to an agreed number of passenger seats was
not affected by the Federal Court decision. The airline violated this term of the policy.
The policy was therefore void against the airline.
Rule:
1. Where it is easy for the insurer to verify the quality of the insured, it has a
duty to perform that verification (the Ir cannot be willfully blind).
2. Where there is a statutory requirement of insurance for reasons of public
safety, the insurer must take reasonable steps to verify the quality of the
insured.
3. If the insurer is in a position not to have access to specific information about
the insured, then regardless of public safety concerns, the insurer is not
responsible to pay the indemnity in the case of a breach in the declaration of
risk by the insured.
You are presumed to know what is going on in your own files.
Class Notes
Facts: Insurance company didn’t open up their own files on Taku. They simply asked
Taku if they had previous accidents and Taku didn’t tell the truth and understated the
amount. There was a clause that stated that if there was any misrepresentation there
will be no indemnity. The problem was could the insurer do that when the coverage
was not really between the insurer and insured but for the benefit of third parties? The
legislator had initially found that this exclusion clause was allowed. Initially, the
contract was ruled void ab initio. But higher courts ruled that a company cannot get a
contracted voided simply because they didn’t check their own file  they knew this
information and this alone would not have voided the policy. And on the other hand, #
of seats is information purely in the hands of the insured and this thus voided policy
because this is information the insurer could not have known and Taku had
misrepresented.
-
-
Mansfield is limited to QC
Taku cases imposes obligation on insurer and basically says it’s a case by case
basis
CCQ 2410 tells us the sanction for failure to represent correctly
Also, in 2410, Death or accident doesn’t have to be linked to subject matter of
information not disclosed, so the cause of death doesn’t matter.
o Materiality is assessed at the time the question was asked
Ouellet c. Industrielle, cie d’assurance sur la vie [1993] R.R.A. 464 – CVL – indemnity
denied for non-disclosure to clear question
Facts
-Insured died in car accident and wife was refused insurance on the ground that the
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insured had declared the he had been a non-smoker for a year and a half prior to his
application for life insurance and had not mentioned that he occasionally smoked small
cigars during the 12 months prior to the application.
-Question asked on application: Have you used tobacco in any form during the last 12
months? The application was not subject to any interpretation on the part of the
applicant.
-The insured has not mentioned that he occasionally smoked small cigars during the 12
months prior to signing the application and thus made a false declaration.
Issue
Appellant claims that the words “faire usage de” in the questionnaire were
ambiguous / unclear.
Held: [NO].
Reasoning
-Appellants argue that the policy cannot be annulled unless there is proof that the
consumption of tobacco has a degree of habitualness. The consumption needs to be
more than occasional.
-The court does not agree with this. They hold that the questionnaire put great
importance on the question on smoking by making a separate text for it on a separate
piece of paper. The words are also clearly unambiguous.
-Also use of the word “déjà” signifies that the insurer wants to know if at some time in
the past the insured smoked.
-They conclude that the interpretation was clear.
-They also conclude that there is nothing in the evidence to show that the insured was
badly informed.
Rule
The policyholder, even the insured if the insurer requests of him, must declare all the
circumstances known to him which are of a sort to likely influence in an important way
a reasonable insurer in establishing the premium, appreciation of the risk or the
decision to accept the risk.
Class Notes
Facts: Insured died in car accident. Insurer refuses indemnity because of his response to
the following question: have you used tobacco in any form in the past 12 months?
Answer: No. Question of materiality was not called into question. The debate was
around what he should have understood by that question? Is this a question that
suggests habitual use? Or occasional use?
The insurer has to make decisions about the risk and one of the relevant factors in
assessing risk is the use of tobacco. Once we’re in the realm of the use of tobacco, it
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doesn’t matter if it was one cigarette or a 100. The insurer is concerned about the pool
and the risk; and generally statistics show that use of tobacco show a higher risk of
mortality than the non-use.
Why are we not concerned about dates here? Because the contract was wrong from the
beginning: CCQ 2410. CCQ 2424 doesn’t help you here because the Courts is implicitly
saying that there was fraud here (an intent to deceive).
-
-
2424. In the absence of fraud, misrepresentation or concealment as to risk does
not justify the annulment or reduction of insurance which has been in force for
two years.
o This is not to be confused with the problem of change in insurability
o It is about what is disclosed at the time of making the application
Now we move to CML. Position is same in the sense that insured must make
disclosure of material facts in his knowledge and the standard for insurer is the
same: reasonable insurer’s point of view
o There’s some subjectivity here because you speak about that specific
insurer – inducement of that particular insurer
 This is not present in the CVL but practically speaking, there’s no
difference.
Ontario Metal Products v Mutual Life of New York [1925] 1 W.W.R. 362 – leading case
on the question posed above – Materiality test for declaration of life insurance risk
Facts
-Mr. Schuch had his life insured for 50 000$. The policy is dated December 13th 1918
and Mr. Schuch died of cancer on April 3rd 1920.
-The liability of the appellants is disputed on the ground that the policy had no effect as
a valid contract owing to a misrepresentation or concealment on the part of the insured
in the answers which he gave to certain questions in the application form, a copy of
which was endorsed in the policy.
-Questions concerned illnesses to be listed since childhood. And to state every physician
who had treated him in the past five years. S. answered that he had not been treated by
a physician. His wife got bronchitis in 1915 and Dr. F prescribed a pick-me up to her.
He prescribed the same thing to S because he was run down from working so much. Dr.
F never examined S.
-Respondents claim “rundown condition” did not need to be marked as an illness
Issue
1)Were the omissions that S made material to the contract? [NO]
2) What is the test of materiality?
Held: (1) No, Appeal dismissed. The non-disclosure was not material to the contract; (2)
the test for materiality is if the matters concealed or misrepresented had been truly
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disclosed, they would, on a fair consideration of the evidence, have influenced a
reasonable insurer to decline the risk or to have stipulated for a higher premium.
Reasoning (Lord Salvesen)
-A man who is able to attend his office every day and all day and to do exacting work in
a competent way, cannot be described as suffering from illness, even if he is pale and
sometimes feels overtired.
-It was S’s duty to disclose the name of Dr. F who had prescribed or treated him. This
finding would have been conclusive against S if the policy been that the accuracy of the
assured’s answers be a basic condition of the contract.
Ontario Insurance Act lays down in unmistakable language:
1) No policy shall be avoided by reason merely of any misrepresentation or
inaccuracy in a statement made by the insured in the application form, whatever
the terms of the policy may import otherwise.
2) Any misrepresentation which may avoid the contract must be misrepresentation
of a fact and must be material to the contract.
The test for assessing materiality is if the matters concealed or misrepresented had been
truly disclosed, they would, on a fair consideration of the evidence, have influenced a
reasonable insurer to decline the risk or to have stipulated for a higher premium.
The application of the name of a physician was not material to the contract; it would not
have changed the insurer’s decision per the facts of this case as per the test above.
Rule: The test of materiality must always be a question of degree, and therefore to be
determined by the court. The test is if the matters concealed or misrepresented had
been truly disclosed, they would, on a fair consideration of the evidence, have
influenced a reasonable insurer to decline the risk or to have stipulated for a higher
premium. [delaying consideration of its acceptance until they had consulted Dr. F.
would not qualify].
Class Notes
Facts: Court is concerned with the materiality of the representation made by the insured
on the life insurance policy. Materiality is a question of fact, is assessed with respect to
the answers and not with respect to the question, and is related to health and life. Case
about individual who worked for the emissions industry. He took out policy in 1915.
Wife gets bronchitis, goes for treatment, doctor recommends same for man because of
his physical appearance. Gave Zamboletee tonic. This was given as a ‘pick me up’.
Question on insurance policy was: state every physician or practitioner who has treated
you, etc. He did not mention this physician.
Issue: was the inaccuracy of answering that question, was that material to the risk?
Held: No. Because the insurer said they would have accepted the risk anyways. So the
materiality was not in the question but in the answer.
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Leading case on how materiality is assessed in the CML.
-
now we’ll look to the particularity of fire insurance in the CML
under fire insurance the contract is void if there is a misrepresentation of the risk
or fraudulent omission of a material element.
o Extra burden on the insurer as far as omissions go
o Leading case on this is Taylor
Taylor v London Assurance Corp [1935] S.C.R. 422 – CML – Fraudulent
misrepresentation must influence the insurer
F: T owns buildings in Northern Ontario, an area generally known to be prone to forest
fires. When T learns of a possible fire near his buildings, he takes out damage insurance
with LAC. He gets his wife to call LAC to get the policy. When she calls, LAC asks if
there is a fire in the adjoining district, she answers “yes, all over the country.” The
property is destroyed on the day following the verbal arrangement with the agent. LAC
claims she fraudulently mislead them (her omission was a misrepresentation). It refuses
to pay the claim.
I: Whether there was misrepresentation or fraudulent omission to communicate
material circumstance.
Held: No. Insurer must pay indemnity.
R (Duff J.):
 Fraudulently, in the Ontario statute, connotes actual fraud.
o She did not make a full and frank disclosure of all the facts and thus likely
does not constitute fraud under the Insurance Act.
o Fraudulent does not mean with the intent of deceiving the insurers.
o Fraudulent means that he did not observe that good faith towards the
insurers, which is his duty to them.
 As for misrepresentation, LAC’s agent Kennedy, called as a witness, does not say
that he was in any way misled by anything that Mrs T said.
o So if it was a misrepresentation, it was a misrepresentation in the air.
 Furthermore, misrepresentation must have a legal effect, i.e. it must be one
influencing the other party to enter the contract. As mentioned above, Kennedy said
that he wasn’t influenced, and as such it has no legal consequence.
o If the misrepresentation shows damage, it would be given a legal effect.
o If the misrepresentation fails to show damage, then it has no legal effect.
Rule: A fraudulent misrepresentation must actually influence the insurer. If it does
not actually influence the insurer, it has no legal consequence.
Comments:
1. Insured must disclose everything he thinks is material
2. K is nullified if Insurer would have actually been influenced by the material fact
that was failed to be disclosed.
S. 148 – statutory conditions – must be included in every Insurance K, and policy
conditions cannot be harsher that the statute. This makes it harder for an insurer to get
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out of paying an indemnity.

Inducement to contract (subjective) informs our analysis of misrepresentation.

IN CVL and CML the reasonable insurer is the test to determine if facts are material
which must be disclosed.

Subjective element becomes the most important part of the materiality test.
The insurer cannot be neutral, it must be a material fact as to whether the K would have
been concluded or not in order to nullify the K.
Class Notes
F: T owns buildings and stuff in Northern Ontario. Forest fires in district – common
knowledge. Mrs. T learned of fire in close by township. Told this to Mr. T. Mr. T asked
Mrs. T to take out insurance. Mrs. T answers insurer’s question of whether there are any
fires by saying “Yes all over the country!” Building burns. Insurer refuses indemnity.
I: Was this a fraudulent omission?
Insurer’s said that this wasn’t necessarily fraudulent because she was in good faith.
They argued fiduciary duty (which is a much higher duty than utmost good faith).
Under the statute however for the omission to be fraudulent it had to be willful and
(deceitful?). So the question is was it a misrepresentation then? 2/3 said it was an
omission rather than a misrepresentation, but it was not a fraudulent omission.
Furthermore, the judges found that Mrs. T did not intend to mislead or deceit. The
fraud in the statute is actual fraud and there has to be an intention to deceive, etc. Also,
it cannot amount to misrepresentation because what she said was a) factually correct
and b) whatever she said did not induce the insurer to the contract  there was no legal
effect to her statement.
-
challenging to distinguish between misrepresentation and omission
the insurer has an interest in framing every question in which an answer would
be a misrepresentation rather than an omission since misrepresentation would be
easier to prove
-
Declaration of Risk
CCQ
Representations and warranties of insured in non-marine insurance
2408. The client, and the insured if the insurer requires it, is bound to represent all the
facts known to him which are likely to materially influence an insurer in the setting of
the premium, the appraisal of the risk or the decision to cover it, but he is not bound to
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represent facts that the insurer knows or is presumed to know because of their
notoriety, except in answer to inquiries.
2409. The obligation with respect to representations is deemed properly met if the
representations are such as a normally provident insured would make, if they were
made without material concealment and if the facts are substantially as represented.
2410. Subject to the provisions on statement of age and risk, any misrepresentation or
concealment of material facts by either the client or the insured nullifies the contract at
the instance of the insurer, even with respect to losses not connected with the risks so
misrepresented or concealed.
2411. In damage insurance, unless the bad faith of the client is established or unless it is
established that the insurer would not have covered the risk if he had known the true
facts, the insurer remains liable to the insured for such proportion of the indemnity as
the premium he collected bears to the premium he should have collected.
2412. A breach of warranty aggravating the risk suspends the coverage. The suspension
ceases as soon as the insurer has acquiesced or the insured has remedied the breach.
2413. Where the representations contained in the application for insurance have been
entered or suggested by the representative of the insurer or by an insurance broker,
proof may be made by testimony that they do not correspond to what was actually
represented.
Lirette v Great American Insurance Co [1987] – CVL -Materiality Test – Reasonable
insurer, Moral Hazard
F: The owner of a hotel obtains damage insurance from GAI. During the normal course
of business, he sells liquor even though he does not have a liquor permit, which he did
not disclose to the insurance co. A portion of the hotel burns down and he claims an
indemnity of about $300,000. GAI refuses to pay because it says that had it known that
Lirette sold liquor without a license, it would have refused to insure him, even though it
has nothing to do with fire damage. There is also a hypothecary creditor that stands to
lose if the indemnity is not paid out.
I: Was the information that L withheld material?
Held: Yes.
R:
 Selling liquor without a license is illegal in Quebec.
 But that in and of itself does not absolve the insurer from paying the indemnity.
 The test by which one can determine whether withheld information is material:
would a reasonable insurer, had he known the information, offered to insure the
applicant.
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
In this case, the statutory breach is a moral hazard: he’s selling liquor illegally.
Could be shut down at anytime. Risk of him burning the building to get payout
increases.
 The fact that this information was withheld from the Ir significantly influenced
the Ir’s appreciation of risk.
 As a result of the omission, the policy ought to be void.
 What about the hypothecary creditor?
o They cannot be in a better position than the Id.
o
There is a hypothecary clause which protects the mortgagee from the
intentional fault of the insured. But, in order to take effect, there must be a
K, and if the K is void ab initio, how do we have a clause at all?
o They had at least 2 alternatives:
 Make sure that the Id is divulging all the information to the Ir.
 Take out a policy itself for the value of the hypothec.
 Failure to diclose a moral hazards can be grounds for nullifying an Insurance K
Rules:
1. The materiality test is: would a reasonable insurer, had he known of the
concealed information, still offered to insure the applicant?
A hypothecary creditor cannot be in a better position than the claimant. He can
always consider alternatives to reduce his risk of default caused by damage.
Maryn v UNUM Life Insurance Co of America 9 C.C.L.I. (3d) 1 – CML – Declaration of
risk in life insurance: non-material fact, no fraud
Facts
-In 1994, Maryn took out disability insurance with UNUM. At this time he completed
the policy form. The policy was issued June 13th 1994. Before the end of the
contestability period, Jensen (Maryn’s ex law partner’s common law spouse) called
UNUM and told them that she personally saw Mr. Maryn get chiropractic treatments
every day. Maryn had met Dr. Bergen, the chiropractor, on a bike trip and set an
appointment with her claiming he had knee pain in order to meet her again (it was a
ruse!). The plan worked and they became romantically involved. She gave him
“preventative” chiropractic treatments. Maryn did not mention these treatments at all in
the policy form he filled out for Maryn.
Issue
Was Maryn’s non-disclosure of chiropractic treatments material (materal to UNUM’s
determination as to whether M was insurable as of the date of the application for
insurance) to the application for disability insurance? Was it fraudulent?
Held: [NO, NO]
Reasoning
(1) Materiality:
-Materiality is a question of fact for the court.
-The burden of proof of materiality is on the insurer. It is a question of fact in each
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case, whether, if the matters misrepresented had been truly disclosed, they would on a
fair consideration of the evidence, have influenced a reasonable insurer to decline a risk
or to have stipulate a higher premium.
-The test is objective in the sense that it refers to any prudent insurer in the normal
practice of that sort of insurance business.
- The opinion or belief of the insured to the materiality is irrelevant.
- Materiality is assessed at the time the application for insurance is completed, because
it is at that time that the underwriter must assess the risk.
- In disability insurance, one is under a duty of utmost good faith to disclose all
circumstances within his knowledge which might influence the underwriter’s opinion
as to the risk being assumed.
-In applying the materiality test, Judge holds that Maryn was healthy and normal at the
time he applied for the policy. He holds that the insurance companies opinion was
founded on a fundamental misconstruction of the events: The medical evidence
established that his back was completely healthy and it seems clear that the treatments
were preventative. Any inference of an event that led to back injury solely from his
initiation of chiropractic treatments was unfounded.
-Concludes that the failure to disclose the chiropractic treatments cannot be regarded as
material to the assessment of UNUM’s risk.
2. Fraud
According to the State, for fraud there must be a false representation, made
knowingly, without belief in its truth, or recklessly, without care whether it is true or
false. Nothing less than this will suffice for the defendant to succeed in this case.
The insured, however, is still bound by her duty of utmost good faith until the
incontestability clause takes effect.
-It is clear Maryn truthfully did not believe he had a back or neck problem. That
subjective belief is supported by the objective medical evidence. Nor did the question
make Maryn believe that these types of treatments would require disclose to UNUM.
Thus, Courts find that Maryn did not consciously decide to withhold information or
demonstrate a reckless disregard for truth in failing to provide this info to UNUM.
Comment:
- S. 191 and 192 of the Insurance Act create a two-step process for determination: 191
requires disclosure of all matters material to the insurance. S. 192 says that after a policy
is in force for two years, a failure of disclosure as required by s. 191 will not provide a
defence for the insurer in the absence of fraud.
Class Notes
The chiropractic treatment was not found to be a material element. Courts found that
disability insurance had been properly obtained. Either way, he didn’t conceal; since it
was outside the 2-year period, in any event he had not been fraudulent. You didn’t need
both of them; one or the other would have been enough. But it was ruled that the
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treatments were not a material element (and thus no concealment). But even there had
been, it was not fraudulent.
Great West Life v Paris [1959] B.R. 349 – CVL
Disability; Agent can bind insurer
Facts
Paris signed an insurance contract where the insurer promised to pay all costs related to
an accident and an indemnity of $100 per month of “invalide”. P hurt his knee playing
hockey and had to be hospitalized and he was “invalide” for 8 months. He is now
claiming $990. The insurance company claims they don’t need to pay because it was
during the act of playing hockey that the accident occurred and in the insurance
proposal Paris replied no to the question: “ Participer vous ou avez vous l’intention de
participé au cours des 3 dernièes années aux sports organizes suivants:…” In his
defence, Paris claims that the exclusive agent of the insurance company knew that he
played hockey and that the agent claimed that “organized sports” signified sports in
which the players were paid; he advised Paris that because he wasn’t paid he should
answer no on the application.
Issue
(1) At the moment Paris was injured, was he participating in an organized sport?
(2) Is the agent and thus the company responsible for the interpretation that Paris
made of the meaning of organized sports?
Held: No, Yes.
Reasoning
Juge Galipeault
The agent was clearly acting under the company’s mandate and thus was an agent of
the insurance company and not P. Furthermore, Paris replied to question 8 based on the
explanations of the agent of the insurance company. In addition, Paris acted in good
faith. Thus, the interpretation given by the agent to P was binding. In addition, judge
holds that organized sports does not include activity that Paris was involved in – thus,
the term is ambiguous.
Juge Hyde
Hyde disagrees with meaning that Galipeault gives to organized sports, but says that
his disagreement highlights the ambiguity of the term. Therefore not unreasonable that
Paris relied on interpretation given to him by the agent. Judge also discusses fact that
the Insurance company claims it is not bound by any interpretation which the agent
might have placed on this question: Agrees that information filled in forms should be
attributed to the applicant and not to the agent. However, while its agent had no
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authority to interpret or advise in connection with the questions marked therein, the
insurance company did not mark anywhere in the form that the agent had no authority
to interpret or advise. Thus, in this situation, Paris had no reason to suspect that he was
not making a full disclosure in his application.
Taschereau (Dissent)
Holds that the word “organized” has a very well known meaning. Thinks that it’s very
obvious that Paris was part of an organized sport. Also holds that the agents role does
not enable him to give alternate meanings to the policy.
Rule
1. Insurance companies must stipulate within the policy if they do not want the
agents to aid the insured party in interpreting the meaning of terms in the
policy. If not indicated, the interpretations given by individuals deemed to be
agents of an insurance company can bind that insurance company.
2. Ambiguous terms will be resolved in favour of the insured.
Insurance Law – May 12
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Exam:
o Don’t worry about jurisdiction for the exam
o Use any case or codal article; doesn’t really matter it’s the big picture
Change in Insurability – in life insurance
CCQ
2425. Life insurance takes effect when the application is accepted by the insurer,
provided that it is accepted without modification, that the initial premium has been
paid, and that there has been no change in the insurability of the risk since the
application was signed.
Trust Général v Artisans Co-op Vie (1990) 2 S.C.R. 1185 – CVL
Effective Date: 3 conditions must be met for a life policy to come into effect; in this
case, at no time are all 3 conditions satisfied together. Strict application of law.
F: The major shareholder of a company called X.Béton (the trust company subrogated
X.Béton, “XB”) signs a proposal with Artisans for his life insurance, paid by for XB. In
other words, the XB gets “key-man” life insurance for its main shareholder.
May 6 1977: A modification is made to the proposal, the Ir accepts it, and emits the life
insurance policy.
May 6 1977: The Id attests that he is in good health and makes a $1000 down payment
on the insurance policy.
Between May 6 and June 14 1977: The Id is hospitalized for severe headaches.
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June 14 1977: The Ir accepts the Id’s request to modify the policy so that premiums
are paid monthly rather than annually. The net result of this change is that the initial
$1000 down payment covers the premium for the 1st month.
July 5 1977: Id is diagnosed with lung cancer.
November 1977: Id dies.
Artisans refuses to pay the policy on the basis that there was a change in insurability
caused by the lung cancer.
Issus: Did the insurance policy take effect prior to the change in insurability?
No, all three conditions for Life Ins to take effect were not contemporaneous.
R:
CCLC 2516 sets out the 3 conditions of a life insurance policy to apply:
Article 2516 C.C.L.C. provides that life insurance becomes effective when the
application is accepted by the insurer, to the extent that (1) it is accepted without
modification, (2) the initial premium is paid, and (3) there has been no change in the
insurability of the risk from the signing of the application. These three conditions are
placed on the same footing and must be fulfilled concurrently for the insurance to
become effective. Since (3) is passive, determination is made when (1) and (2) coincide.
Thus, concurrence can happen anytime after acceptance of application. If the initial
premium is not paid until after the application is accepted, art. 2516 C.C.L.C. has the
effect of a two-part suspensive condition which when met causes the insurance contract
to come into effect.
Applying the facts to the law:

The application was signed and accepted on May 6, 1977;

Only $1000 had been paid, not the full premium.

The application was modified on June 14, 1977, the annual premium is switched
to monthly payments.

There was a change in condition (insurability) sometime between the proposal
date and the coming into force of the definitive policy.

Therefore, the definitive policy was never in effect because the 3 conditions were
never met (the 1st installment was only paid on Jun 14 and there was a change in
risk before that time, which the Ir never accepted).
Rule: Three conditions must be met contemporaneously for a life insurance policy to
come into force
Comments:

Insured argued that change in insurability should be assessed at the moment of
formation and not when all three conditions are met.
o Formation 2389 and effect 2425 are distinct. A contract can be formed, but not
effective.

Change in insurability is passive and objective, not suppose to be connected to
disclosure (but see Beldent)

Trouble exists where there is a change in insurability in the period after application
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
is accepted (and K is formed 2398) and before first payment is made. This a
suspensive condition, meaning Life Ins policy is not effective until all three factors
exist at once.
Change in insurability is a matter of proof. Insured should disclose change to ensure
policy will pay, but not a requirement of law requiring disclosure. Insurer does bare
some risk in the period after acceptance and before first payment.
o The obligation to disclose change in insurability ends at formation, and not all
the way up to payment of first premium.
Class Notes
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case about 2425 CCQ (2516 CCLC) taking effect
March 8, ’77 Application  March 9 Med. Exam  April Neuralgia  May 2-6
Chiropractor  May 4 Policy  May 6, 2nd increase, payment of $1000  June 9
Hospitalized  June 14 Conversion to monthly amount
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Question is when did the life insurance take effect? When were the three
conditions reunited?
o The three conditions never came together. The life insurance never took
effect.
Application  Acceptance  Payment of the premium
o When all three conditions are met, you have formation and acceptance at
the same time since date of effect is adjusted retroactively
o But if there’s a change in insurability after acceptance, the insurance
doesn’t take effect
This case has been criticized: it’s been labeled as excessively technical and rigid
o Especially by civilian minds. Civil law’s concept of the meeting of minds
would argue that the point where the deposit and the acceptance coincide
is where both parties intended for the insurance to take effect.
Could definitely be a good faith argument here
If there’s the slightest possibility of the insurance company not having to pay,
they won’t pay
So this idea of the insurance date being adjusted retroactively given that there is
no change in insurability and all three elements coincide
o This still makes sense because the insurance company is ‘assuming the
risk of you aging’. That is the ‘consideration’ that they’re giving.
Suspensive conditions
o Once they’re fulfilled, the contract begins to take effect, if everything is
honky dory (no change in insurability)
Change in insurability and duty to disclose are two separate concepts
o Duty to disclose is at the time of application
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o Change of insurability is something that may happen prior to the contract
taking effect
Beldent v. Sunlife [1997] R.R.A. 939 – CVL
majority judgment is a mistake: An innocent misrepresentation of risk does not negate the definitive
policy if the policy has been in effect for over 2 years, even if there is a change in coverage during that
time (i.e. the 2 year clock starts ticking on the day the definitive policy takes effect, not on the date of any
subsequent changes).
F:
June 88: Beldent and his wife take out a collective life insurance policy for
$325,000 to cover a bank loan. The bank loan is used to finance their furniture
business.
Sept 88: They seek to increase the policy value from $325 to $500k. The
questionnaire asks if there are any health problems. They answer in the negative.
Oct 88: Mrs. discovers she has leukemia but does not disclose it to Sunlife.
Nov 88: Sunlife increases the value of the life insurance policy from $325,000 to
$500,000.
20 Dec 91: She dies and owing the bank $500,000.
April 92: Sunlife refuses to dish out the $500,000 and rather pays $325,000. It
claims that the health change between the time of the questionnaire and the
policy coverage increase negates their duty to indemnify the bank for the full
value because their consent to the increase was vitiated by the concealment.
Issue: In other words, does Mrs. change in insurability negate the increase (or change)
in the policy?
Held: No (but this would have been different if it were not an increase but the issuance
of a new policy).
Reasoning Majority (Beauregard J.): Incorrect and contrary to SCC decision.

False declarations and omissions make the policy null ab initio. However, CCLC 2515
states that if it has been more than two years since the misrepresentation or
concealment, it won’t void the contract.

This principle also applies in the case where there is a change in insurability after the
signing of the application and before its acceptance with the insuring party.

The original policy had been issued for over 2 years (CCQ 2424) so the 1st policy
was in effect even if there was an innocent misrepresentation. Presumption here is
that insurance is effectively in place. The question is whether the adjustment is in
effect (the increase).

Here, since an omitted fact is not relevant for the insurer after 2 years, an omission
here not disclosed also has no relevance if the insured survives two years after the
acceptance of the application and the payment of the first premium (this is wrong
btw)
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Dissent Reasoning (Justice Forget): reminds of the SCC decision

Focused on CCQ 2425 – effective date of life insurance. (cf. Trust Generale)

The majority judgment contradicts CCLC 2516
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
Change in the insurability of risk prevents the increased amount from coming
into effect.
Rule: ignore majority judgment
Comments:

Beauregard criticism: How can this K be saved when there was nothing to be saved?
There was no meeting of the minds, as insurability of risk dramatically changed
between completing the application and the acceptance.
o CCQ 2425 considers the formation/effectiveness.
o Beauregard cannot find the effects of a K, where the K has not taken effect.

This case has been followed in Superior Court, so looks like policy will be saved if 2 years
have passed since the definitive policy is in place, despite subsequent change in insurability of
risk. Contrast this with CCQ 2441 and suicide.
Class Notes
***According to insurance people, Beauregard didn’t really get it right in this case
Facts: B and wife were co-owners of manufacturing store. Took out insurance. Life
insurance was part of the guarantee to pay debts.
Aug. ’86 Insurance put into place $325K  Sept. ’88 increase of $175K, medical
questionnaire, application  Oct. ’88 diagnosed w/ leukemia  Nov. ’88 new
certificate w/ increase issued, acceptance  Dec. ’91 Death
Issue: is the $125K increased amount in effect?
CCQ 2424 – 2-year period. Judge says if 2-year period has elapsed, there is no problem
whether she said she has leukemia or not. 2 year period is a pro-insured rule but it
relates to the misrepresentation and concealment at the point of the application. J. BR
conflates two ideas erroneously.
Forge (dissent, apparently the more correct one)
Some particularities relating to insurance of persons
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damage insurance: there is also a softening of the sanction of nullity by CCQ
2410 (similar to life insurance, see Ouellete)
o you have prorating
there is also an attenuation of the sanction when we talk about misrepresentation
of the age of the insured
o you have prorating
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CCQ 2442. A contract of insurance for funeral expenses whereby a person
undertakes, for a premium paid in a single payment or by installments, to
provide services or goods upon the death of another person, to pay funeral
expenses or to set aside a sum of money for that purpose is null; Only the person
who paid the premium or installments or the Autorité des marchés financiers
acting on his behalf may bring an action for the annulment of the contract or
recovery of the premium.
o Regulated by Statute; individual contract is not permitted
o Why is that? Because if there is misrepresentation and no indemnity paid,
there would be no funeral. This is against public order.
2443. An attempt on the life of the insured by the policyholder entails, by
operation of law, cancellation of the insurance and payment of the surrender
value; an attempt on the life of the insured by any person other than the
policyholder entails forfeiture only with respect to that person's right to the
coverage.
o Public order argument. Can’t profit from your own crime.
Surrender value = amount accumulated in the policy that can be given when the
insured cancels his or her policy
There are some rights in the life insurance contract that are growing as the
premiums are being paid
o Why do we care about this? Could be savings, could get a loan against,
etc.
o Creditors are also interested in this.
 Should they be allowed to get at this?
The policyholder is the one who takes out insurance and pays the premiums
o The insured may be a different person and a beneficiary may be a
different person on top of that!
o There can also be a subrogated policyholder (in situations where
policyholder dies or whatever and can’t continue to pay the premiums)
 Only applicable when policyholder and insured aren’t the same
person
There are also rules relating to the beneficiary of the insurance policy
o Benefits are either:
 Revocable
 Anybody else
 Irrevocable
 Spouse
o Default in the code:
 Writing (not will):
 If spouse, irrevocable (w/ consent, can be changed)
o Upon divorce policy lapses  CCQ 2459
 Anyone else, revocable (no consent needed)
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 ***remember default can be derogated from if stipulated
Will:
 A designation is always revocable
Where the beneficiary of the policy is a named person, the insurance proceeds go
to that person
If the beneficiary is your estate, proceeds go into the state of the deceased
Why would one be preferable over the other?
o If Estate, available to creditors if you die with debts
Let’s say, in your Will you leave proceeds to your spouse: revocable (since Will)
o Let’s say you change your will later and now leave it to your children:
revocable (even if not a Will)

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Confederation v Lacroix [1996]R.R.A. 931 (CA) – CVL
Payment to legal heir vs. Beneficiary, liberating of obligation
Facts: Lacroix buys life insurance, and designates his “legal heirs” as beneficiaries, and
writes on the side “children”. Lacroix dies, and his will appoints his mother Joane of
Arc (JoA) as his executor and legal heir, without any explicit mention that he also wants
her to be the legal heir for his life insurance proceeds. JoA submits forms and gets
insurer to pay her the indemnity as legal heir. Children realize their slime-bag
grandparents stole their money and initiate an action against the insurer to get their
money. Insurer pursues JoA to get the money back. Trial judge finds for the children
and orders JoA to return the money. Sylvie Veilleux, agent for the insurer, testifies that
Lacroix wanted the money to go to his children.
Issue: (1) who is the correct beneficiary: the “legal heirs” or the “children”? (2) Can the
oral testimony of Veilleux be used to contradict the written evidence of “legal heirs” as
beneficiary? (3) Does the indemnity payment to the legal heirs liberate the insurer from
further obligations?
Held: Children; Yes; No.
Reasoning (J.A. Philippon):
Designation of Benificiary:

Life Insurance should be paid to the person designated by the titulaire, and where no
designation is made it should be paid to the legal heirs. (succession)

CCLC 2543 (CCQ 1445, 2447) does not require beneficiary to be expressly identified,
only identifiable. Therefore a named beneficiary is not required.

Ambiguity exists between “legal heirs” and “children” and court is justified in
searching for intention of Lacroix. Veilleux is not contradicting the written K
(prohibited by CCLC 1234) (CCQ 2863), but is helping the court understand the
insured’s intention.

TJ did not err in accepting the evidence of Veilleux. He had just cause in researching
the intention of the insured as there clearly was ambiguity between the terms legal
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heirs and children. Thus, he was correct to conclude that Lacroix wanted the
indemnity to be paid to his children.
Does payment of Indemnity liberate the insurer

Insurer argues that only one request for indemnity was made (by legal heirs) and
CCLC 2528 (CCQ 2436) requires they pay the indemnity within 30 days.
o Also, CCLC 2549(2) (CCQ 2452(2)) says payments made by the insurer in
good faith are liberating if they are made to the last known person entitled to
it.

The Courts reject the above arguments, and says insurer had all the information
necessary to determine that the children were the beneficiaries. The fact they only
received 1 request for the indemnity does not release them from the duty of looking
in detail at the content of the request. There is an implied obligation that the insurer
has an obligation to verify the claims made.

Appellants did not pay to the true beneficiaries and omitted to verify their
documents. Without their negligence, the indemnity would have been paid to the
proper people. Thus, payment to JoA is not liberating for the Insurer b/c it was not
made to the last known heir, regardless of whether it was made in good faith.
Holding: Insurer paid the wrong beneficiary and if they had only reviewed their own
documents they would have known the children were the correct beneficiaries.
Ratio: Insurers have an obligation to identify the correct beneficiary within their own
records, and indemnity made in good faith to the wrong person does not liberate the
insurer from their obligation.
Class Notes
F: Group insurance: Fills out little card for the employer for the group insurance. In
beneficiary, L writes ‘legal heirs.’ For familial relations: he put children. He wants his
children as his legal heirs; asks the representative of the policy who told him to just
write this so we know that you want them to be your legal heirs. The universal legatee
statement said that he leaves everything to his mama. Insurance co. pays it out to
Mama. Kids now want the money.
It became necessary to interpret L’s intention as to whom he wanted to get the proceeds
of the insurance (whether estate or children). Problem is that he has a will. Added
wrinkle was the old rule of proof – you cannot bring other evidence to contradict
written evidence (document was everything in those days).
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Herities legaux v. enfants. How did this case turn out? Under his will, legal heir
was just his mom.
It’s not only what’s written down when it comes to interpretation. His intention
was clear based on evidence of insurance agent and ex-spouse. Thus, not solely
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what’s written on document but one must establish intention.
Insurance co. had not respected 2452. Designations and revocations may be set
up against the insurer only from the day he receives them; where several
irrevocable designations of beneficiaries are made separately and at different
times, they are given priority according to their dates of receipt by the insurer.
The insurer is discharged by payment in good faith in accordance with these
rules to the last known person entitled to it.
o Insurer failed to look at its own documentation
o Insurer’s negligence was responsible for the erroneous payout. Otherwise
usually payout relieves insurer for liability and are no longer involved in
proceeding actions.
Perron Malenfant c Malenfant (Syndic de) [1999] 3 S.C.R. 375 – CVL
Seizure of surrender value of life insurance, CCQ is a complete list of exemptions for
rights that can be seized under law
Facts: The respondent policyholder insured her husband’s life in a life insurance policy
and designated herself a revocable beneficiary. She had the right to surrender the
policy for its cash surrender value pursuant to the terms of the policy. She is in
business with her husband and they go into bankruptcy. The trustee in bankruptcy
advised the insurer that he was exercising the right to surrender the policy on behalf of
the respondent, and that it should therefore resiliate the policy and pay into the
bankruptcy its cash surrender value. The insurer complied. Lady (respondent) wants
surrender value returned to insurer and policy reinstated. The life insurance policy is
not exempt from seizure under QC law (CCQ 2457 and 2458).
Issue: Whether cash surrender value of policy should be excluded from property
divisible among creditors in bankruptcy?
Held: [NO]
Reasoning (J Gonthier):

Bankruptcy Act says “the property of a bankrupt divisible among his creditors shall
not comprise of (b) any property that is exempt from execution or seizure under the
law” s. 67(1)(b).

Here, the trustee is entitled to seize the policy and exercise the surrender right to
obtain its cash surrender value. The exemption provisions of the Civil Code of Lower
Canada governing life insurance contracts were meant by the legislature to be
exhaustive.

CCQ 2457 & 2458 explain what life insurance policies cannot be seized. Neither
exemption from seizure applies to respondent, meaning her policy can be
surrendered to trustee.
o “Here, the respondent’s policy does not qualify under either of the only
available exemptions, since under the policy, the respondent is both
beneficiary and policyholder and since the designation of the respondent as
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beneficiary was never made irrevocable, and does not benefit from the
presumption of irrevocability of art. 2547 C.C.L.C. “
o “the respondent's policy fails to qualify for either exemption. For a policy to
be exempt from seizure under art. 2552 (CCQ 2457), the beneficiary must be
the consort (or descendant/ascendant) of the policyholder. Here, the
beneficiary is the consort not of the policyholder, but of the life insured (the
individual whose life is insured). Nor does the respondent qualify for the
exemption provided in art. 2554 (CCQ 2458). She did not designate herself
the irrevocable beneficiary of her own policy.”
Ratio: Life Insurance can be seized to satisfy creditors in bankruptcy where it does not
satisfy exemption clauses of 2457 & 2458.
Comments:

2457. Where the designated beneficiary of the insurance is the married or civil union
spouse, descendant or ascendant of the policyholder or of the participant, the rights
under the contract are exempt from seizure until the beneficiary receives the sum
insured.

2458. A stipulation of irrevocability binds the policyholder even if the designated
beneficiary has no knowledge of it. As long as the designation remains irrevocable,
the rights conferred by the contract on the policyholder, participant or beneficiary
are exempt from seizure.

Relevant CCLC articles: 2547, 2552, 2554
Class Notes
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CCQ
there are many things exempt from seizure. The question is how to know what is
exempt from seizure.
SCC states that 2457 & 2458 CCQ constitute the entirety of the law of seizability
of life insurance proceeds under the code.
In this case, the trustee in bankruptcy is attempting to cash in the life insurance
policy.
Here we have the wife as the policyholder, her husband the insured. Value of
policy was $300K. Wife was also the beneficiary. The wife and the husband when
personally bankrupt. Trustee in bankruptcy wanted to force the redemption of
the insurance policy. Wife argues that this policy is exempt from seizure.
Is she the spouse of the policyholder? No, she is the policyholder.
o Doesn’t fit into 2457
No stipulation of her own irrevocability as beneficiary.
o Does not fit into 2458
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§ 5. — Premiums, advances and reinstatement of the insurance
2427. In life insurance, the policyholder is entitled to 30 days for the payment of each
premium, except the initial premium; the insurance remains in force during the 30 days,
but failure to pay the premium within that period terminates the insurance.
The period runs concurrently with any other period granted by the insurer, but it may
not be reduced by agreement.
1991, c. 64, a. 2427.
2428. When payment is made by bill of exchange, it is deemed made only if the bill is
honoured when first presented.
The payment is also deemed made when the bill is not honoured by reason of the death
of the person who issued the bill of exchange, subject to payment of the premium.
1991, c. 64, a. 2428.
2429. The premium does not bear interest during the period allowed for payment,
except in group insurance.
Where the insurer is entitled to interest on a premium due, the interest may not be at a
higher rate than that fixed by the regulations made to that effect by the Government.
1991, c. 64, a. 2429.
2430. No accident and sickness insurance contract that is in force may be cancelled for
non-payment of the premium unless 15 day's prior notice in writing is given to the
debtor.
1991, c. 64, a. 2430.
2431. The insurer is bound to reinstate individual life insurance that has been cancelled
for non-payment of the premium if the policyholder applies to him therefor within two
years from the date of the cancellation and establishes that the insured still meets the
conditions required to be insured under the cancelled contract. The policyholder is
bound in that case to pay the overdue premiums and repay the advances he has
obtained on the policy, with interest at a rate not exceeding the rate fixed by the
regulations made to that effect by the Government.
However, the insurer is not bound by the first paragraph if the surrender value has
been paid or if the policyholder has elected for a reduction or extension of coverage.
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1991, c. 64, a. 2431; I.N. 2014-05-01.
2432. Any amount payable for the reinstatement of a contract may be made out of
advances receivable on the policy up to the sum stipulated in the contract.
1991, c. 64, a. 2432.
2433. The insurer may require the payment of overdue premiums when settling a claim
under a group life insurance contract or an accident and sickness insurance contract.
The insurer may, for any individual insurance contract, deduct the amount of any
overdue premium out of the benefits payable.
1991, c. 64, a. 2433; I.N. 2014-05-01.
2434. Upon the reinstatement of a contract of insurance, the two-year period during
which the insurer may apply to have the contract annulled or the coverage reduced by
reason of misrepresentation or concealment relating to the risk, or may have effect
given to a clause that excludes coverage in case of the suicide of the insured, runs again.
1991, c. 64, a. 2434; I.N. 2014-05-01.
§ 6. — Performance of the contract of insurance
2435. The holder of an accident and sickness policy, or the beneficiary or insured is
bound to give written notice of loss to the insurer within 30 days of acquiring
knowledge of it. He shall also, within 90 days, transmit all the information to the insurer
that he may reasonably expect as to the circumstances and extent of the loss.
The person entitled to the payment is not prevented from receiving it if he proves that it
was impossible for him to act within the prescribed time, provided the information is
sent to the insurer within one year of the loss.
1991, c. 64, a. 2435; I.N. 2014-05-01.
2436. The insurer is bound to pay the sums insured and the other benefits provided in
the policy, in accordance with the conditions of the policy, within 30 days after receipt
of the required proof of loss.
However, in accident and sickness insurance, the period is 60 days, unless the policy
covers losses of income arising from disability.
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1991, c. 64, a. 2436; I.N. 2014-05-01.
2437. Where the insurance covers losses of income arising from disability and the
contract stipulates a waiting period, the 30 day period for payment of the first
indemnity runs from the expiry of the waiting period.
Subsequent payments are made at intervals of not more than 30 days, provided that
proof is furnished to the insurer on request.
1991, c. 64, a. 2437; I.N. 2014-05-01.
2438. The insured shall submit to a medical examination when the insurer is entitled to
require it owing to the nature of the disability.
1991, c. 64, a. 2438.
2439. In accident and sickness insurance, where an aggravation of the occupational risk
has lasted for six months or more, the insurer may reduce the indemnity provided
under the policy to the sum payable for the new risk according to the premium
stipulated in the policy.
Where there is a reduction of the occupational risk, the insurer is bound, from receipt of
a notice to that effect, to reduce the rate of the premium or to extend the insurance by
applying the rate corresponding to the new risk, as the client may elect.
1991, c. 64, a. 2439.
2440. The heirs of the beneficiary of an insurance contract may require the insurer to
make a single lump sum payment to them of any sums payable by instalments.
1991, c. 64, a. 2440.
2441. The insurer may not refuse payment of the sums insured by reason of the suicide
of the insured unless he expressly stipulated that coverage would be excluded in such a
case and, even then, the stipulation is without effect if the suicide occurs after two years
of uninterrupted insurance.
Any change made to a contract to increase the amount of coverage is, as regards the
additional amount, subject to the initially stipulated exclusion clause for a period of two
years of uninterrupted insurance beginning on the effective date of the increase.
2442. A contract of insurance for funeral expenses whereby a person undertakes, for a
premium paid in a single payment or by instalments, to provide services or goods upon
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the death of another person, to pay funeral expenses or to set aside a sum of money for
that purpose is null.
Only the person who paid the premium or instalments or the Autorité des marchés
financiers acting on his behalf may bring an action for the annulment of the contract or
recovery of the premium.
1991, c. 64, a. 2442; 2002, c. 45, s. 161; 2004, c. 37, s. 90.
2443. An attempt on the life of the insured by the policyholder entails, by operation of
law, cancellation of the insurance and payment of the surrender value.
An attempt on the life of the insured by any person other than the policyholder entails
forfeiture only with respect to that person's right to the coverage.
1991, c. 64, a. 2443; I.N. 2014-05-01.
2444. The benefits established in favour of a member of a mutual benefit association, or
of his or her married or civil union spouse, ascendants or descendants are unseizable
either for debts of the member or for debts of the beneficiaries.
1991, c. 64, a. 2444; 2002, c. 6, s. 55.
2457. Where the designated beneficiary of the insurance is the married or civil union
spouse, descendant or ascendant of the policyholder or of the participant, the rights
under the contract are exempt from seizure until the beneficiary receives the sum
insured.
1991, c. 64, a. 2457; 2002, c. 6, s. 57.
2458. A stipulation of irrevocability binds the policyholder even if the designated
beneficiary has no knowledge of it. As long as the designation remains irrevocable, the
rights conferred by the contract on the policyholder, participant or beneficiary are
exempt from seizure.
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Insurance Law – May 13
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rights of the policyholder
o Advances
o Surrender value
o If the surrender value is part of the contract from the beginning, it is a
continuous offer from the Insurer. If the policy holder accepts, it ends the
contract.
o If not mentioned in the contract, offer to purchase comes from Insured;
when accepted by Insurer, end of contract.
o “Disposition of interest in the policy” taxable under 148 (9) of the Income
Tax Act.
If the insurance is cancelled for non-payment of the premium and then reinstated
(must be within 2 years from date of cancellation), the 2 year delay within which
the insurer can seek nullity for misrepresentation or concealment, or can invoke
the suicide clause, “runs again”. (Article 2434).
insured is deemed to have survived the beneficiary
o CCQ 2448: co-morientes
o 2448. Where the insured and the beneficiary die at the same time or in
circumstances which make it impossible to determine which of them died
first, the insured is, for the purposes of the insurance, deemed to have
survived the beneficiary. Where the insured dies intestate, leaving no heir
within the degrees of succession, the beneficiary is deemed to have
survived the insured. In similar circumstances, the preceding policyholder
is deemed to have survived the subrogated policyholder.
Irrevocable / revocable
o Default position is revocable when in the will
o Default position is revocable when not spouse
o Irrevocable when spouse, unless consent or indicated otherwise
What if there is no beneficiary designated?
o Where the policy holder is the insured. Death. Proceeds of life insurance
go to estate (succession of the deceased)
o Where the policy holder is not the insured. The policy holder dies, the
insured is still alive. Who gets the rights in the policy?
 To subrogated policy holder if there is one. If not, to heirs of policy
holder.
Into the estate or not?
See her powerpoint slides and understand
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relevance of revocable or irrevocable
o unseizability of rights or proceeds arts 2457 and 2458
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2457. Where the designated beneficiary of the insurance is the married or civil
union spouse, descendant or ascendant of the policyholder or of the participant,
the rights under the contract are exempt from seizure until the beneficiary
receives the sum insured.
o Exemption of seizure of the value that is accumulating in the policy. We
are NOT talking about at death.
o So where the beneficiary is a family member, it is exempt from seizure for
realization to pay debts (until beneficiary receives the sum insured).
2458. A stipulation of irrevocability binds the policyholder even if the designated
beneficiary has no knowledge of it. As long as the designation remains
irrevocable, the rights conferred by the contract on the policyholder, participant
or beneficiary are exempt from seizure.
o Describes type of benefit
o Where designation says beneficiary is irrevocable, the creditor cannot
oblige the cash in of the insurance policy
o Once again protecting a privileged / vulnerable class of persons
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Insurance Law – May 14
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insurance has been a big driving force in rules of interpretations in contracts
the general rules of contractual interpretation reflect exactly what’s going on in
the leading case Consolidated Bathurst
o exact mirror of the process of interpretation that is provided for in the
code
situation of ambiguity can arise from specific the occurrence of specific elements
outlined in the code
if there’s no ambiguity, the judge gives the normal meaning to the words
o NOT the expert’s meaning
To interpret:
o Look to the common intention of the parties
o Look at the spirit of the law over the letter of the law
o You don’t go too wide if the terms are general and on the flip side you
shouldn’t be too restrictive to a clause intended to apply to a specific
situation where the contract is intended to apply to general terms
If all the above does not yield a good result where there is an ambiguity, you
apply the contra proferentem rule (against the stipulator)
o Against the insurer
o Only when there is ambiguity which isn’t resolved by the other
interpretive methods
What if the ambiguity ends up being in the text that comes out of a statutory
condition, or regulation enactment?
o In principle, no
o This is a CML question where there are statutes governing insurance /
contracts
Interpretation – conditions, exclusions
Consolidated Bathurst Export Ltd v. Mutual Boiler [1980] 1 S.C.R. 888 – CVL
Interpretation of inconsistent words
Facts
-Appellant is a manufacturer of paper products. They were required to shut down part
of its facilities because of the failure of three heat exchangers and suffered loss of 158,
289$ of which 15 604$ was direct damage to the tubes in the heaters.
-The respondent is the insurer under a policy issued in respect of certain property
including heat exchangers.
-Respondent resists claim by appellant because the damage was caused by corrosion of
the tubes inside the heat exchangers and this risk was specifically excluded from the
coverage provided by the policy.
Issue
Was the loss occasioned by the corrosion of the heat exchangers recoverable under
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the terms of the policy?
-Is consequential loss covered by the policy?
-Is the other loss that happened subject to the indemnity?
Held: (2) Yes, otherwise the insured didn’t pay for anything. Appeal allowed.
Reasoning (Estey)
The heart of the argument is that while the definition of accident in the policy does not
include the event of corrosion or similar events, the definition does include, in the
appellant's submission, events which succeed and which may be due to the event of
corrosion.
The majority of the Supreme Court of Canada concluded that the issue before it was
whether the corrosion exclusion clause was to be read, as saying that any cost resultant
from corrosion was not covered by the insurance policy, or as saying that only the cost
of making good the corrosion itself was excluded.
In interpreting an insurance contract, effect must first be given to the intention of the
parties. Step two is the application, when ambiguity is found, of the contra
proferentem doctrine by which any doubt as to the meaning and scope of the excluding
or limiting term is to be resolved against the party who has inserted it and who is now
relying on it.
The Courts look at other exclusion clauses in the contract and says where the insurer
wanted to exclude consequences, the insurer uses the words directly and indirectly. For
example: war damage. In definition of accident, that formulation is not used, so with
respect to these kinds of accidents, there was no exclusion of consequences.
Consequences of this type of event would be covered. Such specific language invoked
the contra proferentem doctrine against the insurer.
Alternatively, the Courts said that the fairest interpretation applicable to the policy was
not literal interpretation, but rather an interpretation that would use the normal rules of
construction. Very insistent that intention of parties needs to be looked at in context of
commercial relation. Wording has been reproduced in contract. You choose a result
which promotes a sensible logical commercial result. Ask question: What did the
insured pay for? (Think of Carter Boehm). He is looking at intentions of both parties. If
we say there is no coverage for consequential loss, then insured didn’t buy any
coverage at all. If the court were to accept the submissions of the respondent, that loss
suffered by the insured by reason of the failure of a machine due to wear and tear
and the consequential downtime of the plant was excluded by the definition of
accident, then the insured would have purchased by its premiums, no coverage for
what may well be the most likely source of loss or certainly a risk pervasive through
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much of the plant.
Ritchie (Dissent)
Holds that there is no ambiguity. While the policy here covers damage to property
other than the object itself, the coverage is limited to indemnity in respect of loss or
damage to property of the insured directly caused to an object by an accident as that
word is defined in the policy. Therefore an interpretation which would result in
affording coverage to the insured for consequential damages whether it was due to
corrosion or otherwise cannot be adopted.
Rule
1) When interpreting insurance contracts, look to the common intentions of the parties.
If ambiguity is found, contra proferentem doctrine applies.
2) Courts will favour an interpretation that gives the contract commercial effectiveness.
Class Notes
Facts: There was an accident. Salt water was circulating in the pipes, which caused them
damage. There was also damage to the machine. The business also was shut down
(losses here). Thus, a number of things flowed from this corrosion in the pipes.
Issue: Is this loss covered?
Reasoning:
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Where the insurer wanted to exclude consequential loss, it uses the terminology
directly and indirectly
Look at the intention of the parties (especially the commercial reality). You
choose the result that is the sensible commercial approach.
o If the damage to the property is excluded, and the consequential losses are
excluded (as the dissent suggests) then the insured is paying for nothing
Doesn’t think that contra proferentem even needs application in this case
General Notes:
The first judgment is the dissent on Canlii.
Definition of accident (p. 891): “accident shall not mean corrosion…”
But accident is not what we’re claiming for. We’re claiming for loss.
o We know the direct damage to the pipe will not be covered because that
was corrosion and this is specifically excluded
o But what about the other loss?
The insuring agreement says “to pay the insured for loss of or damage to
property of the Insured”
Dissent simply says that the policy was only intended to insure damage caused
specifically to the property itself
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In CML, you’ll find the same approach as in Consolidated Bathurst
o Courts ask themselves the question: what was the insured contracting for?
 Common intention of the parties
o The additional thing that we have in the common law interpretive arsenal
(that is coming now to QC) is the concept of reasonable expectation
 To some extent, intent of parties reflect this idea but it is not just
that
 Kaperonis
The CML interpretative operation also requires that we distinguish statutory
conditions from exclusions.
o Insurer’s cannot have conditions harsher than statutory conditions.
However, exclusions are different. The exclusions are the contractual part,
where as the statutory conditions are brought in by the statute.
o Often quite difficult to distinguish between conditions and exclusions
 From insurer’s point of view, exclusion is better; from insured,
condition
 Exclusion would have to do with the object of insurance, with the
property, the subject matter of the insurance, with the risk itself
o If the restriction is an exclusion, than an exclusion really addresses what
the insurer is prepared to take in its risk and what it’s not prepared to take
in its risk
 It is not with respect to some condition enshrined in the statute, it’s
what the insurer is prepared to take on or not take on with respect
to the risk itself
What is the meaning of accident?
Canadian Indemnity v Walken Machinery& Equipment [1976] 1 S.C.R. 309 - CML
Definition of Accident, criminality and directing mind; Negligence can be an accident.
Facts
-The principle action was instituted as a result of the collapse of one of two pintle cranes
supplied by Washington. It was found that Washington and Walken omitted to warn
the plaintiffs (Straits), and the act of returning the vessels to them in a state of
inadequate repair was a breach of a duty.
-This action is an appeal of the B.C Court of Appeal decision condemning Canadian
Indemnity (Appelants) to indemnify the respondent Walken against the losses incurred
by it arising out of the actions instituted by Straits Towing and Straits Bridge against it.
This is a third party victim claiming indemnity.
Issue
1) Was Walken’s negligence criminal? No
2) Was the collapse of the crane an “accident” within the meaning of the policy?
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Yes
Appeal dismissed
Reasoning (Pigeon)
1) Criminal Negligence:
-Criminal negligence can deny recovery of insurance based on public order. For
example, in Lindal and Beattie v. Home Insurance Co a motorist had been driving in a state
of intoxication was denied recovery from his insurer. This ground only avails when the
illegality of the transaction is fully established.
-In this case there is no finding supported by evidence that established the commission
of a crime. The only finding is one of negligence in a civil case. This supplies no basis
for holding that it was criminal negligence.
-Also, consideration would have to be given that Walken is an incorporated company.
A corporation is party to an offence only when the act is brought home to its directing
mind. Here there is no finding that Walken himself was privy to the negligence of its
servants as required to make it criminally responsible for it, assuming to be criminal.
2) “Accident”
-One must avoid the danger of construing that term as if it were equivalent to
“inevitable accident.” That a mishap might have been avoided by the exercise of greater
care and diligence does not automatically take it out of the range of accident. Expressed
another way, “negligence and “accident” as here used are not mutually exclusive
terms. They may co-exist.
-Accident is sometimes used to describe unanticipated or unavoidable occurrences,
no dictionary need be cited to show that in every day use, the word is applied to any
unlooked for mishap or occurrence. Thus, the proper test of deciding whether
something is an accident is whether it was “an unlooked for mishap or occurrence”
-Negligence is by far the most frequent source of exceptional liability which a
businessman has to contend with. Therefore, a policy which would not cover liability
due to negligence could not properly be called comprehensive.
Ritchie in Dissent:
-Does not agree that the word “accident” as used in a comprehensive business liability
insurance policy includes a calculated risk which appears to imply the very antithesis of
an unlooked for mishap or occurrence.
Rule
An accident is any unlooked for mishap or occurrence.
Class Notes
Facts: W was doing repair to machinery. Knew of the dangerous condition of the crane
but nonetheless pawned it off to an unsuspecting customer.
Issue: Does this fall within the ambit of an accident?
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General:
this case was not a question of criminal negligence
the scope of accident clearly includes negligence because our negligence does not
enter the domain of deliberateness or intentionality
scope of accident is fairly wide
even when there is foreseeability, there is still some uncertainty and does not
take away the accidental quality
remember: intentional acts never are included. However, even this has been
qualified.
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so we’re concerned about consequential damages but we’re also concerned with
how far is the insured’s action tolerated in terms of still accepting that this action
fell under what the insurer is covering
intentional act, we understand, is not permitted
o but how far can we go in the ‘grey zone’?
 negligencegross negligencerecklessnessintentional
 CML – “courting the risk”
 Criminal
 Public policy
 Intentional: act? Only? Damage also?
property  damage  3rd party liability
Sirois v. Saindon [1976] 1 S.C.R. 735 – CML
Indemnity rejected to insured because of intentional fault; distinction between
intentionality of act vs. injury, intent assessed objectively
Facts: Saindon (defendant/respondent) accuses Sirois (plaintiff) of cutting branches off
his cherry tree. Sirois’ kid did the cutting, and Saindon walks over towards them with a
lawnmower running and lifts the mower shoulder height to “scare” Sirois. In selfdefence Sirois lifted his hands and had some fingers cut off and his wrist injured. Court
awards Sirois 40K in damages but defendant’s insurer refuses indemnity. Overturned at
CoA, and insurer ordered to pay.
Issue: Is the exclusion of indemnity clause applicable here? Did the insured intend to
bring about the damages?
Held: Yes. Yes.
Reasoning (Ritchie J.)
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Saindon claims coverage under his Comprehensive Personal Liability Policy, which
reads:
o COVERAGE A — (1) Comprehensive Personal Liability: To pay on behalf of
the Insured all sums which the Insured shall become obligated to pay reason
of the liability imposed by law upon the Insured, or the liability of others,
assumed by the Insured under any written agreement relating to the
premises, for damages, including damages for care and loss of services,
because of bodily injury or property damage.
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Insurer claims exemptions from having to pay on 2 basis (succeeds at trial and SCC,
rejected by CoA):
o Public Policy - S. 2 of the Insurance Act: Unless the contract otherwise
provides, a violation of any criminal or other law shall not, render
unenforceable a claim for indemnity under a contract of insurance except
where the violation is committed with intent to bring about loss or damage.
o Exclusion clause 6 of K: coverage does not apply "to bodily injury or personal
damage caused intentionally by or at the direction of an insured"
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Word “cause” in exclusion clause is to be interpreted using common sense
interpretation. The defendant's act constituted criminal conduct which caused
damage and the fact that the scare intended by the defendant had more serious
consequences than he might have anticipated did not alter the fact that it was his
threatening gesture which caused the damage. The act of picking up the lawnmower
is such that he could not have intended otherwise than to cause the harm he did.
Almost like deeming intentionality. There must be a substantial certainty that the
injury would result.
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Act and injury both must be intended, to an objective standard of reasonable person.
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Insurance Act exemption applies - wilful and culpable act which has a result which
the actor did not intend — which is both reckless and unlawful —surely does not
entitle him to say that it was an accident.
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K Exemption clause 6 applies - the personal damage sustained by Sirois was
intentionally caused within the meaning of exclusion No. 6 in the policy and also
that the insured's actions constituted a violation of the criminal law committed by
him with intent to bring about loss or damage, although the precise damage was not
anticipated
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Insurance coverage should be denied as the defendant's actions constituted a
violation of the criminal law committed by him with intent to bring about loss or
damage.
Dissent (CJ Laskin)
Issue: simply whether the word "intentionally" in the exclusionary clause covers both
intentional and reckless acts.
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Exempting provision of an insurance policy are to be construed strictly against the
insurer.
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Not enough to show a likelihood, must show clear intent to cause these injuries.
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K exemptions fails - The exclusion of the insurer's liability is expressed as applying
only "to bodily injury or personal damage caused intentionally by or at the direction
of an insured". The evidence does not support a finding of fact that the respondent
intended to cause injury.
o Criticizes the TJ for treating the original raising of the lawn mower as itself
enough to establish intention to cause injury, doing so by importing a
negligence concept into the assessment of the respondent's conduct.
o Cites US cases to say the exemption clause only applies where the insured
intended to inflict the actual injury, which is not the case here.
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o where intent to cause injury is relied upon by an insurer as an exclusion, it
cannot succeed merely by showing that a deliberate act was involved which
was not an accident, without also showing that there was an intent to cause
the injury and not merely that there was a likelihood that injury might result
from the act.
o Rejects the exclusion clause 6 as grounds for refusing to pay indemnity.
Insurance Act fails - S. 2 - the question is whether a violation of law was committed
by the insured "with intent to bring about loss or damage". The insurer's position is
it is enough to show an intent to bring about damage of any kind, even if there be no
intent to bring about the damage that actually resulted. Burden remains on the
insurer, and again it fails.
Insurer fails to bring itself within the exclusion clause nor the exclusion of s. 2 of the
Act, and therefore must pay the indemnity.
Ratio: Indemnity is not payable where insurer commits intentional fault. Intention
imports in it notions of recklessness.
Comment: almost an equity issue of not wanting to benefit the defendant, but could
have the result of leaving the innocent third party victim without chance of recovery.
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Laskin’s argument is an effort to be able to compensate the victim.
This requirement of intent for act and injury is equally applicable in sexual assault
cases. In sexual assault the harm is deemed to be within the very nature of the act. (See
Scalera and Sansalone).
Class Notes
Facts: Branches were cut of Saindon’s cherry tree. Saindon confronts Sirois. Accident
happens. Mr. Sirois is severly injured. Sirois sues Saindon. Saindon has 3rd party
liability insurance. Tries to recover.
Issue: is this an intentional act the insurer is justified in excluding?
Reasoning: Majority said that: what else could this act have been? The act was so
egregious, this act was such that the insured must have intended not only the act but
also the injury that resulted. This insurer is thus justified in refusing the indemnity.
General:
exclusion in the policy says no coverage for intentional injuries caused by the
insured. The violation of a criminal law also does not negate the policy unless the
act is done with the intent to bring about the loss.
So you can see it goes pretty far on the intentional act side.
The code says that the resulting injury has to be part of the intention
Important dissent by J. Laskin: to invoke the exclusion, the insurer has to find not
only that the act was committed but that these particular damages were
committed intentionally. Laskin would have found the insurance ‘good’.
o This is the test that is usually applied
There is an exception to this ‘intention’ in sexual assault cases. The harm is
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deemed to be an intended result.
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so this intention bit. Is this a purely objective standard or is there some
subjectivity in it?
o where the act falls short of an illegitimate or criminal characterization
o gross negligence still generates coverage under liability insurance as long
as he was unaware of the inevitability of the damage
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CCQ 2480. In addition to the particulars prescribed for insurance policies
generally, an indication shall be made in a property insurance policy of any
exclusion of coverage not resulting from the ordinary meaning of the words or
any limitation of coverage applying to specified objects or classes of objects,
specifying the conditions on which the contract may be cancelled by the insured,
as well as those on which the insurance may be reinstated or continued after a
loss.
Class Notes
Facts: Insured intended to commit suicide. As he was waiting to succumb to the effects
of the gas, he lit his last cigarette…and caused an explosion.
Issue: Can individuals in the building get the proceeds from his damage insurance?
Comments:
there was an intentional act here. Gas is on and I’m lighting a cigarette.
You have an entry to the subjective component to the intentionality.
o We don’t seem to be in the same kind of zone as Sirois.
o Intentional fault is not triggered if you don’t have the intention to
commit the damage. Refers to both the act and the consequences.
Axa Assurances inc c. Assurances générales des caisses Desjardins EYB 2006-105389 –
CVL
Intentional Fault exclusion does not extend to accidental / unintended damage ;
subjective element in QC law.
Facts: F committed suicide by burning down his residence. His neighbours, however,
suffered damages to their property and now have brought an action. Axa is subrogated
and institutes proceedings against Desjardins. D invokes an exclusion clause in the
policy and article 2464 of the CCQ saying that they don’t have to pay in the presence of
an intentional fault of the insured. A claims that this interpretation is erroneous and
that they must show that the insured was conscious of the damages that would result
from his fault.
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Issue: Does the intentional fault of the insured absolve D from paying the indemnity?
Held: No.
Reasoning:
CCQ 2464 and the exclusion clause in the contract removes the insurer of all
responsibility in the case of an intentional fault of the insured. It is admitted that
it is F’s intentional act that caused the damage. However, the case turns on
whether F wanted his act to cause injury to his neighbor’s building. If he did,
then no indemnity.
In property insurance, intentional fault deprives insurance indemnity. However,
in liability insurance, the issue is more complicated.
The intention must be not only on the act, but also on its results.
In addition, the burden of proof rests with the insurer and the exclusion clause
must be interpreted restrictively.
In this case, D has not proven that F desired to damage the property of his
neighbours or that the resulting damage was foreseeable and inevitable (the state
of mind of F at the moment the damages happened remain unknown, as well as
his understating of the characteristics of the immovable and the possibility of fire
catching very quickly or damages caused by radiation).
Courts conclude that there is insufficient evidence to conclude that Fournier
intentionally damaged the neighbours property and accordingly it could only be
by accident.
Ratio: Both the act and the consequences must be intended in order for liability insurer
to refuse indemnity.
Comment: Door is open to the subjective nature of intent in QC law.
Class Notes
Comments:
same as above. Individual attempting to commit suicide and causes damage in
the process.
In this case, we don’t know the insured’s state of mind.
The insurer was required to pay here.
So once again, with respect to the intentional act of the insured, we are looking at
the intentional act BUT ALSO the intentional act to bring about the damage
o And it not a purely objective standard. There are hints of subjectivity here.
o Quite clear that the door has been opened to a subjective test.
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This is also the case in the CML
o the direction the law is heading is similar as in CVL: objective with hint of
subjectivity and intention of act and intention of consequence
Axa (suicide by burning house down)
i. Intentional fault exclusion does not extend to
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accidental/unintended damage
ii. Subjective element within intent to bring about the damage (in cvl)
Some particularities of damage insurance: change in the risk, notification, payment
CCQ
SECTION III
DAMAGE INSURANCE
§ 1. — Provisions common to property insurance and liability insurance
I. — Principle of indemnity
2463. In damage insurance, the insurer is obliged to indemnify for the injury suffered at
the time of the loss, but only up to the amount of the coverage.
1991, c. 64, a. 2463; I.N. 2014-05-01.
2464. The insurer is bound to indemnify for injury resulting from superior force or the
fault of the insured, unless an exclusion is expressly and restrictively stipulated in the
policy. However, the insurer is never bound to indemnify for injury resulting from the
insured's intentional fault. Where there is more than one insured, the obligation of
coverage remains with respect to those insured who have not committed an intentional
fault.
Where the insurer covers injury caused by a person for whose acts the insured is liable,
the obligation of coverage subsists regardless of the nature or gravity of the fault
committed by that person.
1991, c. 64, a. 2464; I.N. 2014-05-01.
2465. The insurer is not bound to indemnify for injury resulting from natural loss,
diminution or losses sustained by the property arising from an inherent defect in it or
its nature.
1991, c. 64, a. 2465; I.N. 2014-05-01.
II. — Material change in risk
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
2466. The insured is bound to promptly notify the insurer of any change that increases
the risks stipulated in the policy and that result from events within his control if they
are such as to materially influence an insurer in setting the rate of the premium,
appraising the risk or deciding to continue to insure it.
If the insured fails to discharge his obligation, the provisions of article 2411 apply,
adapted as required.
1991, c. 64, a. 2466; I.N. 2014-05-01.
2467. On being notified of any material change in the risk, the insurer may cancel the
contract or propose, in writing, a new rate of premium, in which case the insured is
bound to accept and to pay the premium at the new rate within 30 days of the proposal,
otherwise the policy ceases to be in force.
However, if the insurer continues to accept the premiums or pays an indemnity after a
loss, he is deemed to have acquiesced in the change notified to him.
1991, c. 64, a. 2467; I.N. 2014-05-01.
2468. The lack of occupation of a residence does not constitute a change which increases
the risk if it does not last more than 30 consecutive days or the insurance covers a
second residence designated as such.
Nor does the admission of tradesmen into the residence to do maintenance or repair
work for a period of not more than 30 days constitute a change which increases the risk.
1991, c. 64, a. 2468; I.N. 2014-05-01.
III. — Payment of the premium
2469. The insurer is entitled to the premium only from the time the risk begins, and only
for its duration if the risk disappears completely as a result of an event that is not
covered by the insurance.
The insurer may bring an action for payment of the premium or deduct it from the
indemnity payable.
1991, c. 64, a. 2469.
IV. — Notice of loss and payment of indemnity
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
2470. The insured shall notify the insurer of any loss which may give rise to an
indemnity, as soon as he becomes aware of it. Any interested person may give such
notice.
An insurer who has not been so notified, and thereby suffers injury, may set up against
the insured any clause of the policy providing for forfeiture of the right to indemnity in
such a case.
1991, c. 64, a. 2470; I.N. 2014-05-01.
2471. At the request of the insurer, the insured shall inform the insurer as soon as
possible of all the circumstances surrounding the loss, including its probable cause, the
nature and extent of the damage, the location of the insured property, the rights of third
persons, and any concurrent insurance; he shall also provide the insurer with vouchers
and attest under oath to the truth of the information.
Where, for a serious reason, the insured is unable to fulfil that obligation, he is entitled
to a reasonable time in which to do so.
If the insured fails to fulfil his obligation, any interested person may do so on his behalf.
1991, c. 64, a. 2471; I.N. 2014-05-01.
2472. Any deceitful representation entails the loss of the right of the person making it to
any indemnity for the risk to which the representation relates.
However, if the occurrence of the risk insured against has entailed the loss of both
movable and immovable property or of both property for occupational use and
personal property, forfeiture is incurred only with respect to the class of property to
which the representation relates.
1991, c. 64, a. 2472; I.N. 2014-05-01.
2473. The insurer is bound to pay the indemnity within 60 days after receiving the
notice of loss or, if the insurer requested them, the relevant information and vouchers.
1991, c. 64, a. 2473; I.N. 2014-05-01.
2474. The insurer is subrogated to the rights of the insured against the person
responsible for the loss, up to the amount of indemnity paid. The insurer may be fully
or partly released from his obligation towards the insured where, owing to any act of
the insured, he cannot be so subrogated.
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
The insurer may never be subrogated against persons who are members of the
household of the insured.
1991, c. 64, a. 2474; I.N. 2014-05-01.
V. — Assignment
2475. A contract of insurance may be assigned only with the consent of the insurer and
in favour of a person who has an insurable interest in the insured property.
1991, c. 64, a. 2475.
2476. Upon the death or bankruptcy of the insured or the assignment of his interest in
the insurance to a co-insured, the insurance continues in favour of the heir, trustee in
bankruptcy or remaining insured, subject to his performing the obligations to which the
insured was bound.
1991, c. 64, a. 2476; I.N. 2014-05-01.
VI. — Cancellation of the contract
2477. The insurer may cancel the contract on prior notice which shall be sent to every
insured named in the policy. The cancellation takes place 15 days after notice is received
by the insured at his last known address.
A contract of insurance may also be cancelled on mere notice in writing given to the
insurer by each of the insured named in the policy. The cancellation takes place upon
receipt of the notice.
The insured named in the policy may, however, give one or more of their number the
mandate of receiving or sending the notice of cancellation.
1991, c. 64, a. 2477.
2478. Where the right to the indemnity has been hypothecated and notice to that effect
has been given to the insurer, the contract may not be cancelled or amended to the
detriment of the hypothecary creditor unless the insurer has given him prior notice of at
least 15 days.
1991, c. 64, a. 2478; I.N. 2014-05-01.
2479. Where the insurance is cancelled, the insurer is entitled to only the earned portion
of the premium, computed day by day if the contract is cancelled by the insurer, or at
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
the short-term rate if it is cancelled by the insured; the insurer is bound to refund any
overpayment of premium.
1991, c. 64, a. 2479; I.N. 2014-05-01.
2479.1. If the insured has assigned or hypothecated his right to a premium overpayment
refund to or in favour of the person who paid the premium and the insurer has received
notice of the assignment or hypothec, the insurer is bound to make the overpayment
refund to the assignee or to the holder of the hypothec.
The assignment or hypothec may not be set up against third persons until the insurer
receives notice of the assignment or hypothec.
If two or more assignments or hypothecs are made or granted on the same right to a
premium overpayment refund, priority is determined according to when the insurer
received notice.
2008, c. 20, s. 131.
§ 2. — Property insurance
I. — Content of the policy
2480. In addition to the particulars prescribed for insurance policies generally, an
indication shall be made in a property insurance policy of any exclusion of coverage not
resulting from the ordinary meaning of the words or any limitation of coverage
applying to specified objects or classes of objects, specifying the conditions on which the
contract may be cancelled by the insured, as well as those on which the insurance may
be reinstated or continued after a loss.
1991, c. 64, a. 2480.
II. — Insurable interest
2481. A person has an insurable interest in property where the loss or deterioration of
the property may cause him direct and immediate injury.
It is necessary that the insurable interest exist at the time of the loss but not necessary
that the same interest have existed throughout the duration of the contract.
1991, c. 64, a. 2481; I.N. 2014-05-01.
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
2482. Future property and incorporeal property may be the subject of a contract of
insurance.
1991, c. 64, a. 2482.
2483. Property insurance may be contracted on behalf of whomever it may concern. The
clause is valid as insurance for the benefit of the policyholder or as a stipulation for
another in favour of the beneficiary of the clause, whether known or potential.
The policyholder alone is liable for payment of the premium to the insurer; any
exception that the insurer may set up against him may also be set up against the
beneficiary of the contract, whoever he may be.
1991, c. 64, a. 2483; I.N. 2014-05-01.
2484. The insurance of property in which the insured has no insurable interest is null.
1991, c. 64, a. 2484; I.N. 2014-05-01.
III. — Extent of coverage
2485. In fire insurance, the insurer is bound to indemnify for damage which is an
immediate consequence of fire or combustion, whatever the cause, including damage to
the property during removal or that caused by the means employed to extinguish the
fire, subject to the exceptions specified in the policy. The insurer also covers the
disappearance of insured things that occurs during the fire, unless he proves that the
disappearance is due to theft which is not covered.
The insurer is not bound to indemnify for damage caused solely by excessive heat from
a heating apparatus or by any process involving the application of heat where there is
no fire or commencement of fire but, even where there is no fire, the insurer is bound to
indemnify for damage caused by lightning or the explosion of fuel.
1991, c. 64, a. 2485; I.N. 2014-05-01.
2486. An insurer who insures property against fire does not cover damage due to fires
or explosions caused by foreign or civil war, riot or civil disturbance, nuclear explosion,
volcanic eruption, earthquake or other cataclysm.
1991, c. 64, a. 2486; I.N. 2014-05-01.
2487. The insurer is bound to indemnify for damage to the insured property caused by
measures taken to save or protect it.
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
1991, c. 64, a. 2487; I.N. 2014-05-01.
2488. Insurance of things generally described as being in a certain place covers all things
of the same kind which are in that place at the time of the loss.
1991, c. 64, a. 2488.
2489. The insurance of a furnished residence and that of movable property in general
covers every class of movable property except what is expressly excluded or what is
insured for only a limited amount.
1991, c. 64, a. 2489.
IV. — Amount of coverage
2490. The value of the insured property is determined in the ordinary manner unless a
special valuation formula is contained in the policy.
1991, c. 64, a. 2490.
2491. In unvalued policies, the amount of the coverage does not make proof of the value
of the insured property.
In valued policies, the agreed value makes complete proof, between the insurer and the
insured, of the value of the insured property.
1991, c. 64, a. 2491; I.N. 2014-05-01.
2492. A contract made without fraud for an amount greater than the value of the
insured property is valid up to that value; the insurer has no right to charge any
premium for the excess but premiums paid or due remain earned by him.
1991, c. 64, a. 2492; I.N. 2014-05-01.
2493. The insurer may not refuse to cover a risk for the sole reason that the amount of
the coverage is less than the value of the insured property. In such a case, he is released
by paying the amount of the coverage in the event of total loss or a proportional
indemnity in the event of partial loss.
1991, c. 64, a. 2493; I.N. 2014-05-01.
V. — Losses, and payment of indemnity
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2494. Subject to the rights of preferred and hypothecary creditors, the insurer may
reserve the right to repair, rebuild or replace the insured property. He is then entitled to
salvage and may take over the property.
1991, c. 64, a. 2494.
2495. The insured may not abandon the damaged property if there is no agreement to
that effect.
The insured shall facilitate the salvage and inspection of the insured property by the
insurer. He shall, in particular, permit the insurer and his representatives to visit the
premises and examine the insured property.
1991, c. 64, a. 2495.
2496. Any person who, without fraud, is insured by several insurers, under several
policies, for the same interest and against the same risk, so that the total amount of
indemnity that would result from the separate performance of such policies would
exceed the loss incurred, may be indemnified by the insurer or insurers of his choice,
each being liable only for the amount he has contracted for.
No clause suspending all or part of the performance of the contract by reason of
plurality of insurance may be set up against the insured.
Unless otherwise agreed, the indemnity is apportioned among the insurers in
proportion to the share of each in the total coverage, except with respect to specific
insurance, which constitutes primary insurance.
Hypothecary Creditors
Caisse Populaire des Deux Rives v Société Mutuelle [1990] 2 S.C.R. 995 – CVL
Hypothecary clause is a distinct K, and is not voided by intentional fault of insured
Facts:
o A Farmer obtained a loan from respondent Caisse and hypothecated his property to
secure its repayment.
o The deed of loan provided that the debtor undertook to insure the hypothecated
property in the respondent’s favour, and in fulfillment of his obligation the debtor
purchased an insurance policy with appellant.
o The standard hypothecary clause provided that in the event of loss, indemnity was
payable to respondent and the acts, neglect, omissions or misrepresentations of the
owners of the insured property could not be invoked against hypothecary creditors.
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
o Property was burnt down intentionally by debtor.
o Appellant insurer refused to pay respondent creditor based on previous version of
2464 CCQ, CCLC 2563: an insurer "is not liable, notwithstanding any agreement to
the contrary, for prejudice arising from the insured's intentional fault".
Issue: Whether intentional fault of debtor can be invoked against hypothecary creditor.
Held: No, appeal dismissed.
Reasoning (Heureux Dubé)
o The insurance clause in the hypothecary loan contract contains all the elements of a
contract of mandate, under which the hypothecary debtor has undertaken to keep
property subject to the hypothec insured.
o The hypothecary debtor took out an insurance policy containing a hypothecary
clause. The wording of this clause indicates the existence of a second insurance
contract between the hypothecary creditor and the insurer, a contract separate
from the one purchased by the hypothecary debtor personally.
o Since the hypothecary creditor and not the debtor is the insured under this second
insurance contract, indemnification of the hypothecary creditor for the loss caused
by its debtor's intentional fault is not contrary to the prohibition of public order
contained in art. 2563 C.C.L.C. Fault by the hypothecary debtor must be treated as
fault by a third party.
Determining if the hypothecary clause is a separate contract (two-step process)
A)
1) Is there a contract (CCLC 984)? Yes:
-Parties legally capable of contracting
-Their consent is legally given
-Something which forms the object of the contract
-A lawful cause or consideration
2) Is it an insurance contract? Yes: (CCLC 2468)
-It is only if these two elements are satisfied that a hypothecary clause can be
characterized as an insurance contract.
B)
3) Compliance with public order provisions in CCLC, in particular 2563?
-The basis of 2563 is the idea that the uncertainty of the insured event, the risk,
determines its insurability.
-For the insured himself, the damage resulting from his own intentional fault is not in
any way unpredictable, as the result is the determined consequence of his action and
therefore he cannot be indemnified for it.
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
-In the second insurance contract contained in the policy, the hypothecary creditor and
not the debtor is insured. Accordingly, the hypothecary creditor is not benefiting from
his intentional fault when he claims to be entitled to the insurance indemnity as a result
of a fire caused by the intentional fault of his debtor. In such circumstances, the
insured, (the hypothecary creditor) has not committed any fault, intentional or
otherwise. Neither does the debtor benefit from his intentional fault, since the payment
of the indemnity by the insurer does not result in his release but simply substitution of
debtor.
-An intentional fault by the hypothecary debtor is an uncertain event in so far as the
insurance contract between hypothecary creditor and the insurer is concerned. It is
therefore an insurable risk.
Rule: The intentional act of an insured does not bar recovery for hypothecary creditors
if the hypothecary clause creates a separate contract.
Class Notes
Issue: does the fact that the intentional act of the insured is not covered, is this
opposable to a hypothecary creditor, such as a bank?
General Comments:
this case clarified what was the extent of the mortgage clause contained in the
insurance
remember, generally you don’t have more rights than the insured if you are a
third party ‘stipulatee’
o problem of characterizing the insurance when there was a bank in the
picture
the solution that the Courts found was that this mortgage clause creates a
separate insurance arrangement for the mortgagee (who is the creditor: the bank)
o so in the loan agreement the bank gives a mandate to the insured to take
out insurance for themselves as well
-
what happens in a similar situation as the above case, but it is a question of a
fraudulent act or a failure to properly disclose?
Banque Nationale de Grèce v. Katsikonouris [1990] 2 S.C.R. 1029 – CVL
Separate K is valid from formation and is not voided by misrepresentation ab initio.
Facts: A businessman obtained a loan from appellants and hypothecated one of his
properties to secure its repayment. The hypothecary deed of loan provided that the
debtor undertook to insure the hypothecated property in favour of appellants and in
fulfilment of this obligation the debtor later purchased a fire insurance policy from
respondent insurers. This policy contained a standard mortgage clause (or standard
hypothecary clause) which provided that "this insurance . . . is and shall be in force
notwithstanding any act, neglect, omission or misrepresentation attributable to the
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
mortgagor, owner or occupant of the property insured, including transfer of interest,
any vacancy or non-occupancy, or the occupation of the property for purposes more
hazardous than specified in the description of the risk". The debtor's property was
destroyed by fire and the insurers refused to pay appellants the indemnity, alleging that
the policy was void ab initio as the result of misrepresentations by the debtor when the
policy was purchased.
Issue: whether the nullity ab initio of the insurance policy, resulting from
misrepresentations by the hypothecary debtor at the time the policy was purchased, can
be invoked against the hypothecary creditors.
Held: No.
Reasoning: majority:
When insuring its own interest in the property, the hypothecary debtor also
assumed a mandate to take out a separate and distinct contract of insurance to
insure the hypothecary creditors' interest in the hypothecated property. The
insurers cannot refuse to honour this independent contract. The standard
mortgage clause makes no distinction between acts and neglects of the
hypothecary debtor committed at the inception of the policy, and acts and
neglects subsequent to its formation. The insurance of the hypothecary creditors
cannot, therefore, be invalidated by any act or neglect of the hypothecary debtor,
be it at the inception of the policy, or subsequent to its formation.
The ejusdem generis rule finds no application in the context of the standard
mortgage clause (A rule of interpretation that where a class of things is followed
by general wording that is not itself expansive, the general wording is usually
restricted things of the same type as the listed items.)
Additionally, insurance contracts must be interpreted as they would be
understood by the average person applying for insurance, and not as they might
be perceived by persons versed in the niceties of insurance law. If the insurer
were reserving to itself the right to invalidate the coverage of the hypothecary
creditor as a result of some misrepresentations and omissions of the hypothecary
debtor, it was incumbent on the insurer, in drafting its insurance form, to make
this known in clear, express and easily intelligible terms.
Finally, while the hypothecary debtor is acting as the mandatary of the
hypothecary creditor when it insures the hypothecary creditor's interest, it does
not follow that any false representations made by the hypothecary debtor in
effecting its mandate should be held to be those of the hypothecary creditor. The
law of mandate does not operate so as to have this effect in the context of the
standard mortgage clause.
Dissent:
-
The insurance clause in the hypothecary loan contract is a contract of mandate,
by which the hypothecary debtor undertakes to insure the hypothecated
property on behalf of his hypothecary creditor. Since the debtor was acting in
accordance with his mandate by purchasing the hypothecary creditors' insurance
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contract, the misrepresentations he made at that time must be regarded, for the
purposes of considering the validity of this contract, as misrepresentations made
by the hypothecary creditors themselves.
Furthermore, by application of the rule of interpretation noscitur a sociis or the
ejusdem generis rule, we must therefore conclude that only misrepresentations
subsequent to purchase are covered by the mortgage clause.
Ratio: Unless expressely indicated, misrepresentations made at the time of formation by
a hypothecary debtor do not vitiate the contract between the hypothecary creditors and
insurers (null ab initio cannot be invoked against hypothecary creditors).
Class Notes
Facts: Insured fails to disclose other insurance it has had and previous losses and
previous cancelled policies.
Issues: Does the hypothecary clause protect the hypothecary creditor from any acts? Or
only those in the course of the insurance? What is meant by act, neglect, omission, or
misrepresentation?
Comments:
what happens if it was at the beginning? Well if it never took effect, it never took
effect…but we have two contracts here, technically.
o So even if it is null ab initio, the contract is still valid with respective to
the bank
Strong dissent by L’Heureux-Dube: if insured, via using the theory of the
mandate, is representing the bank, then the bank contract should be void. You
can’t have the representative acting for the bank when it’s to their favour and not
when it’s not (the whole corporate veil thing: can’t lift it here and then not there;
must apply it evenly across the board).
-
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Insurance Law – May 15n (Jon’s class notes)
Emballages Smurfit-Stone Canada Inc c La Cie d’assurance New Hampshire [2004]
R.J.Q. 1436 – CVL
K interpretation, property v. liability insurance to determine prescription period
Facts

FCP (the appellant) has two insurance policies. One of them is with NH
(Respondent). FCP rents an abbateuse from co. Abbateuse is completely destroyed
when being used by FCP’s employee. FCP is bound to return the property in proper
condition back to co. from whom they borrowed. NH is refusing to indemnify,
claiming the action is prescribed (loss happened over 5 years ago).
Issue

What type of insurance did FCP have? (As prescription period all turns on this
issue)
o Was this insurance that protected objects that they owned (property
insurance) or insurance that covered objects that they were responsible for
(liability insurance)?

What was the intention of the parties concerning objects that didn’t belong to FCP
but were under their control?

What was the intention of the parties concerning objects that had two insurance
policies on them?
Held: The policy is exclusively property damage insurance. Appeal dismissed b/c
action is prescribed.
Reasoning (Dalphond)


First, the clause No. 5 of the policy states that payments are made to the insured or
to the order, while a liability insurance payment is a third victim of the fault of the
insured. Second, the policy does not deal with the representation of the insured by
the insurer, which would be an oversight if it were a liability insurance. Third, the
policy covers the property owned by the insured, which are destroyed, making it a
property insurance, qualification consistent with its title "Ancillary Property
Insurance". In addition, it covers property not belonging to the insured property
described as "real and personal property for which they are responsible where ever
located.”
Holds that a clause by which a person insures an object that does not belong to them
can be perfectly valid in QC, just need a direct and immediate interest in the object,
2580 CCLC
o It is sufficient that the insured has a direct and immediate interest in the
property. In the proceedings, the appellant has agreed to deliver the
abbateuse in good condition after use. If they can’t do it, they will be
prejudiced because it will have to be replaced. They are thus legally
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responsible.
o This does not think this makes the policy liability insurance. It was insured
only for the value of giving it back in a good state.

If it had been concluded that it was liability insurance, the amount could have
exceeded the actual value of the abatteuse because the owner could have claimed on
top of the value of the abatteuse loss of profits.

So the insurance does protect FCP to give it back in a good state, but not by claims
made by third parties.

Thus, the insurance was property insurance and the prescription period has run.

Should be noted that FCP instituted this action 5 years after the loss of the abatteuse.

Must always look to what the intention of the parties was when drafting the
contract“

2475 CCLC (2395 & 2396) insures against two types of damage. Property insurance
and liability insurance.
o CCQ does not prevent you from having both types of coverage.
o This distinction is important in this case because if the type of insurance was
for property, then the protection is prescribed.
Pelletier

Insurance interest is at the heart of the problem.

Thinks the main obstacle in qualifying the insurance as property insurance is
claiming that FCP had a direct and immediate interest in the abatteuse. FCP did not
own the property. Furthermore, the prejudice depends here on an intermediary
factor (the other company instituting proceedings, i.e. the prejudice here depends on
action by RM or Blackwood.)

However, insurable interest as a concept as evolved and 2483 CCQ recognizes
explicitly that someone can insure the interest of a third party.

Insurance for the account of others was based on the stipulation for another and was
a property insurance. Thus, the stipulation for another justifies, in this case, the
qualification of the policy as property insurance.
Rule
Insurance can still qualify as property insurance even if one does not own the property
and even though the indemnity will be used to compensate another party for the loss
sustained.
Class Notes
-
what kind of insurance was in place?
o was it liability insurance for an employee?
why do we care?
o the way in which we classify and categorize insurance types/relationships
affects the prescription period
 in Smurfit, they were still within the time period in which they
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-
-
-
could make a liability claim, but outside the time limitation period
in which they could make a property claim
two important clauses:
o insurance will cover that which insured is responsible for
o insurance will cover that for which the insured is legally liable
 thus, probably wouldn't cover things like force majeure, since the
insured couldn't generally be legally liable for such things
o *courts were thrown off by these clauses
obligation on lessee was to return the property, thus, insurance was the force
itself in order to protect that obligation
Dalphond concludes from the clauses that it was insurance on property, and thus
the limitation period had expired - no ability to claim
o property has a short limitation period because the insurer needs to be able
to inspect it and verify the nature of the loss
 more than 1 or 2 years means that the property has likely been
destroyed or compromised
2nd aspect of the case relates to the presence of the 'legally liable' clause
o court wants to figure out exactly what this means
if the insured is only legally liable, then again, force majeure damage/loss would
not be covered
o should such types of policies be subject to a narrow interpretation to limit
what insurers are obliged to pay out?
o one of the justices tried to bring it within a civil law context
 concludes that there should be a wide interpretation to include
even things like force majeure
 gets his argument from CCQ 2483 - insurance that exists for
the benefit of the owner
Types of clauses in policies:
 accident (unlooked for mishap/occurrence)
o can be found in damage, life, or illness insurance
o foreseeability doesn't mean that the event is not covered, but it must be
'unlooked for'
 intentional fault
o insured is not entitled to the proceeds where there is intentional fault
o there is a public policy element that enters when the intentional fault is a
criminal one
o also complications that arise when there are innocent 3rd parties present
as potential beneficiaries
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan

Saindon was an example of this - where there was an intentional act
AND intention to cause the damage in question, then there is no
insurance payout
 NOTE: 3rd party is NOT an official beneficiary, and is not an
expected beneficiary until the damage itself occurs
We will look at 'accident' on the accidental --- reckless continuum that we illustrated
last class, in the context of life insurance
Martin v. American International Assurance Life Co 2003 SCC 16 – CML
Expectation Test to find accidental death.
Facts: The insured, Dr. E, was a physician who developed an addiction to opiate
medications. He completed a residential treatment program. However, after a painful
orthopaedic injury, he became physiologically dependent on both morphine and
Demerol and was placed on a program of gradual withdrawal from these drugs. Dr. E
was found dead in his office and the coroner concluded he died from an overdose
caused by an intravenous injection of Demerol. The level of Demerol found in his blood
was at the low end of the range for lethal doses. Dr. E’s life insurance policy stipulated
that coverage would be provided only for deaths effected through “accidental means”.
Issue: Whether category of deaths caused by “accidental means” narrower than that of
“accidental deaths”. Whether insured’s death effected through “accidental means”.
Held: No. Yes.
Reasoning:
Accidental Death Benefit Provision: “the Company will pay the amount of the
Accidental Death Benefit ... upon receipt of due proof that the Life Insured's death
resulted directly, and independently of all other causes, from bodily injury effected solely
through external, violent and accidental means ...”
o Insurance policies must be interpreted in a way that gives effect to the
reasonable expectations of the parties.
o “Accidental means" conveys the idea that the consequences of the actions
and events that produced death were unexpected. To ascertain whether a
given means of death is "accidental", we must consider whether the
consequences were expected.
o This interpretation of death by accidental means accords with the
ordinary meaning of the phrase. Death by accidental means is death that
has been brought about unexpectedly — or that constitutes "an unlookedfor mishap or an untoward event which is not expected or designed".
The phrase “accidental means” in the insurance policy does not refer to a narrow
subclass of the broader category of “accidental deaths”. Both phrases connote a
death that was in some sense unexpected.
To determine whether death occurred by accidental means, it is necessary to look
to the chain of events as a whole, and consider whether the insured expected
death to be a consequence of his actions and circumstances.
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
The central question is whether the insured expected to die.
The circumstances of the death may point to the answer.
The test does not change for cases involving conduct that brings with it a high
risk of death; the test remains whether the death was designed or expected and is
answered from the perspective of the insured.
The issue is not whether the activity was dangerous, or even whether death was
likely, but whether the insured expected or intended to die.
The test for accident is essentially subjective, although to the extent the insured's
actual intent is unknown, we must infer it from what a reasonable person in his
or her position would have expected.
Dr. E did not expect to die but simply made a miscalculation concerning how
much Demerol his body could tolerate.
Ratio: The central question in determining whether a death was accidental is to ask
whether the insured expected to die as a consequence of his or her actions and
circumstances. Accidental means is not a narrower term than accidental death.
-
Class Notes
-
-
doctor addicted to opiates
in October 1996 he was in his second withdrawal program
o he was working and doing well, but in a lot of pain
o he never came home from his office that day
 he was found dead the next day, having overdosed from demoral
and an enhancing drug
insurance coverage would cover death by external, violent and accidental means
o first question that the insurer would ask
 did he commit suicide?
 in common law, the default would be NO coverage (unless
there was the 2 year clause excluding coverage for 2 years)
 in civil law, the default would be coverage
 facts do not indicate an intention to commit suicide
 he was working, doing well, planning a vacation, etc.
 he did overdose, but the death does not seem intentional
 is there a way that we can interpret this series of events such
that death is still the result of an accident?
 ALL ACCIDENTS have some deliberate elements involved
in their immediate causes
o in this chain of events, did the insured expect death to
be a consequence of his action?
 if death was 'unlooked for', then it was an
accident
 the insurance coverage said that death had to
be from accidental means
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan

since he injected himself with demoral,
the insurer argued that accidental
means were not present
 court rejected this argument
 this case was important because it affirmed that you can still
have an accident from a deliberate act of an insured, as long
as there are unintended consequences
o seems to draw on Saindon, where not only must the
insured engage in intentional action, but also
must intend the consequences that ensued
 did the insured expect to die?
 to answer this question, we initially apply a subjective test
 however, if we cannot ascertain the expectation about this
insured, then the court may consider whether a reasonable
person in the position of this insured would have expected
to die. (thus, we can draw on an objective test if necessary)
o NOTE THAT COURT WANTS TO SAVE THE
INSURANCE POLICY, SO THEY TRY TO WEIGH IN
FAVOUR OF INSURED
 amount of demoral that was injected was within the normal dose,
but it seems that he miscalculated the amount of phenobarbitol (the
demoral enhancer) in his system
o various examples given of deliberate actions that give rise to the
unexpected consequence of death
o deliberate with unintended consequences = accident
Candler v. London & Lancashire Guarantee & Accident Co. of Canada (1963) - CML
Class Notes
-
guy balancing on railing of 13th floor balcony in a hotel
death ruled non-accidental by the trial judge
insurers, as in this case, can always narrow the scope of the contract by clause
o they can define accident so as to limit some of these situations at the
margins
o there was a strong limitation clause in this case
Scenario: if you work as a painter in the summer, you are outside, and you get bitten by
a mosquito
 you have some disability insurance that will pay you for replacement income if
the reason for your disability is due to an accident
 you develop West Nile Virus as a result of the mosquito bite
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan



bearing the case of Martin in mind, is your disability the result of an accident
this set of facts is actually the case of Kolbuc
we are moving from situations of accident to bodily dysfunction or disease
o at what point does the individual body's specific reaction to things enter
into the picture?
o here we are really looking at a natural event - the body's reactions to a
natural cause
 it is part of the natural course of life that one might be bitten by a
mosquito, and there is always the possibility that disease might
ensue (trial judge dismissed claim)
o trial judge was overturned on appeal - appeal court said that this was an
accident - the insured did not expect to develop this - there was no specific
action on his part either (which separates it from Martin)
o In Kolbuc, the event was considered an unexpected event
o the Supreme Court later denounced this decision, however
Kolbuc v. ACE INA Insurance [2006] I.L.R. I-4474 and 2007 ONCA 364 – CML
Accident and Sickness Insurance - Accidental paralysis – Expectation test N/A
First Instance Judgment:
Facts: The insured contracted West Nile virus in 2002 as the result of a mosquito bite.
He developed polio-like acute flaccid paralysis and was rendered permanently
paraplegic. The insurer denied his claim under the policy, on the grounds that his
injuries were not the result of an accident, but of disease. The insured argued that the
mosquito bite constituted an accident, and that his injuries had been directly caused by
that accident.
Issue: Were the Plaintiff’s injuries the result of an accident or a disease?
Held: Accident.
Reasoning:
- The insured's injuries were not caused by an accident, by rather by a disease
- There was a clear distinction in precedent establishing the difference between
accident and disease
- Being bitten by a mosquito and contracting West Nile virus was not within the
ordinary meaning of the term accident.
Court of Appeal:
Held: Accident
Reasoning:
- The appellant suffered an accident for which he was entitled to coverage under
the policy.
- At the time, while mosquito bites were common, there had been no reported
cases of the West Nile virus in Ontario.
- The appellant engaged in work, without intending to cause himself harm, and
the harm that did result could not reasonably have been foreseen or expected.
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
The injuries were caused by an external source, namely a mosquito. This fell
within the ordinary definition of an accident.
Ratio: Injuries caused by an external source, without the insured intending to cause
himself harm, and the harm that resulted could not have been foreseen or expected will
be characterized as an accident.
Comment: (1) This is a natural body reaction, but court found it to be within the
ordinary definition of accident. (2) No action initiated by the insured, unlike Martin.
Expectation test does not apply in natural causes cases.
-
An accidental death policy is an additional benefit that is contracted for as
supplementary to a life insurance policy (it is not generally included by default)
 accidental death benefit (or illness)
o expect to die vs. accident
 expect to die ---> "Russian Roulette"
 accident --> bodily function vs. disease
Co-operators Life Insurance Co v Gibbens, 2009 SCC 59 – CML
Disease case, Expectation Test rejected, coverage rejected for Natural body reactions
Facts: The insured had unprotected sex with three women and acquired genital herpes,
which in turn caused transverse myelitis, a rare complication of herpes that resulted in
total paralysis from his mid-abdomen down. He was aware of the risk of contracting a
sexually transmitted disease but did not know that any of the women had genital
herpes. He claimed compensation under his group insurance policy which provided
coverage for losses sustained “as a direct result of a Critical Disease or resulting directly
and independently of all other causes from bodily Injuries occasioned solely through
external, violent and accidental means, without negligence” on the insured’s part. The
definition of (critical) diseases in the policy does not include transverse myelitis. Insurer
is refusing to pay indemnity.
Issue: Whether insured’s paralysis caused by “external, violent and accidental means” within
meaning of insurance policy.
Held: No.
Reasoning:
The insured’s loss is not covered by the policy. The interpretation of insurance
policies should avoid unrealistic results that would not have been contemplated
by the insured and the insurer when they entered into the policy agreement. The
word “accident” is an ordinary word to be interpreted in ordinary language as it
would be understood by the average person applying for insurance.
Accident insurance is not comprehensive health insurance and it is evident that
the parties in this case did not expect the policy to cover all loss or bodily injury.
TM is an unexpected consequence of genital herpes that occurs rarely but it is a
normal incident or consequence of the disease. Since the transmission followed
the normal method by which sexually transmitted diseases replicate, the bodily
injury proceeded from natural causes.
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Contrary to the inference sought by the insured through reference to Martin,
there is no necessary equivalence between “unexpected” and “accident”.
Accordingly, this test is unhelpful when it comes to consequences of a disease.
If such transmissions were classified as accidents, then an accident policy would
become a comprehensive health policy despite the substantially lower premium.
The onus is on the claimant to show that the loss is covered by the
policy. However, once the claimant leads evidence sufficient to establish a prima
facie case that the bodily injury was caused by an “unlooked-for mishap or an
untoward event which is not expected or designed”, the tactical burden then
shifts to the insurance company to displace the prima facie case by some evidence
that the bodily injury is not an accident but its “antithesis”, namely, the result of
a disease picked up in the ordinary course of events.
o The burden of proof however, remains squarely with the plaintiff.
Ratio: Accident insurance does not covers injuries, no matter how rare, sustained from
a disease which proceeded from natural causes.
-
Class Notes
-
-
STRONGLY criticizes Kolbuc
policy here covers "bodily injury sustained by external, violent, and accidental
means, without negligence"
o question here was whether the bodily injury (paralysis) resulted from an
external means
o basically said that this did not fit the definition of an accident
 it was simply a natural tragedy that occurred through the
development of disease in the "ordinary course of events"
o the problem wasn't that Gibbens engaged in a dangerous activity nothing to do with 'courting the risk' (remember, CML doesn’t care about
this)
 there is always uncertainty and risk involved with living life
(insurer can't escape paying out based on uncertainty and 'courting
risk' by the insured)
insurer also, however, cannot be held as assuming the type of risk that paying
out every case of disease would entail
the chain of events must be started by an 'accidental' cause to keep the
possibility of an accident claim open
herpes was a sexually transmitted disease that Gibbens contracted in the normal
course of events
***NEED TO READ GIBBENS FOR EXAM!!!!!!*****ALSO, READ THE GUILLET
CASE AND WANG CASE (not necessary to read Wang) (Wang is one of the disease
cases – bodies natural but unfortunate reaction to a normal course of events, unlike a
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
situation where there is an external provocation of an accident (and even then, you
must look at the entire chain of events))****EVERY YEAR THE EXAM DEALS WITH
ELEMENTS OF THESE CASES
Look at basketball and pregnancy/childbirth examples
Consider case of someone who jumps off a roof while under the influence of LSD
(thinking he can fly)
From a public policy perspective, what do we do with the innocent beneficiary when
the act that potentially triggers the insurance payout is criminal?
Transamerica v Goulet 2002 SCC 21 – CVL
Life insurance – public order exception – insured does crime, innocent third party
Facts: The respondent’s husband died in 1994 when a bomb he was attempting to plant
in a car exploded. The respondent, in her capacity as designated beneficiary, claimed
the indemnity provided for in the insurance policy her husband had taken out on his
own life in 1990. Notwithstanding the fact that there was no clause precluding payment
of the indemnity if the insured died while committing a crime, the insurer refused to
pay. It maintained that public order justified refusal to pay when the death had
occurred during the commission of a crime.
Issue: Whether public order exception that “no one may profit from his or her own
crime” exists in Quebec insurance law — If so, whether exception is a bar to
beneficiary’s right to claim insurance indemnity.
Held: Yes. No.
Reasoning:
- An insurer never insures the intentional fault of the insured.
- In the context of a life insurance contract, the suicide of the insured during the
first two years of the coverage (art. 2532) and an attempt on the life of the insured
by the owner of the insurance contract (art. 2559) are the only intentional acts
- Thus, in this case, act committed by an insurer was not an intentional act
- The principle of public order that “no one may profit from his or her own crime”
exists in Quebec insurance law.
- While this principle prevents the insured or the person entitled to receive the
insurance indemnity from profiting from his or her own crime, insurance law
does not preclude the protection of innocent third persons or beneficiaries from
the consequences of criminal activity.
- To prevent innocent third parties from recovery, the insurance contract must
contain a clause specifically providing that the insurer is not required to pay
the indemnity if the insured dies in the commission of an indictable offence.
o Art. 2550 CCLC cannot be used by the insurer to deny recovery to an
innocent third party
o Cannot be set up against the beneficiary causes of nullity / foreiture that
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
have purely personal with the insured
Ratio: (1) Life insurance only has two types of intentional acts by the insured: Suicide
and an attempt on the life of the insured. (2) Public order exception exists in QC
insurance law that no one may profit from the proceeds of a crime. (3) This exception
can only be set up against innocent third parties for indictable offences and if the
contract contains a specific clause providing for this.
Class Notes
Goulet case says that there is only intentionality/intentional act of the insured in two
cases when we are considering the context of life insurance
- suicide
- attempted homicide against the life insured
- thus, in life insurance, we are generally not considering 'intentionality' - only
exceptions are cases of suicide and attempted homicide
o this is opposed to accident insurance, where intentionality is important, or
in property/liability insurance, where intentionality is always relevant
- idea of intentionality in life insurance was debated in Goulet
o Quebec Court of Appeal initially said that CCQ 2464 (dealing with
intentional acts - found in the damage insurance section) could also be
applied to life insurance
 SCC said that this was totally wrong (prof also finds this
wrong!!!!)
 remember that this was in the early 1990s and the new CCQ was
still being figured out in its legal application
- Madame Goulet was the widow and beneficiary of the life insurance proceeds
from her husband's policy
o he died when a car bomb he was planting at Dorval airport accidentally
exploded and killed him
o he didn't intend to die
 and even if there had been an exclusion clause in the policy
excluding suicide, it wouldn't have mattered because the policy
had passed the 2 year maximum exclusion period for Quebec
o there was no clause in the insurance contract precluding payment of
indemnity if insured died in the commission of a crime
 does death in the commission of a crime negate the possibility of
receiving indemnity on public policy grounds?
 triggers the public policy stance that 'no one can benefit from
his/her own criminal activity'
o Madame argues that there was no clause preventing payment of
indemnity while committing crime
o insurer counters this by saying that such a clause was unnecessary, since
public order already prohibited such types of payouts
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
the objection to this, however, is that the innocent beneficiary
(Madame Goulet) was not involved in the commission of the crime
- she didn't trigger the event, and it would thus be against public
order to deprive the innocent beneficiary of an indemnity payout
 this type of public policy was laid out in Mutual of Omaha v.
Stats
 we thus have a case of competing public policies
 again, insurer can avoid liability by including a clause that
excludes payment of indemnity if death occurs during
commission of a crime (subject to the limits of CCQ 2402)
o CCQ 2402 says that insurer cannot exclude payment
of proceeds relating to crime, except in cases of
indictable offenses
 drug trafficking would be an indictable
offense, but drug consumption would not be
o after a lot of discussion of the CCQ, and consideration of whether CCQ
2464 applied to life insurance (decided that it didn't), the SCC determined
that an insurance company needed to have a clause specifically
preventing payout to innocent beneficiaries if death of insured occurs in
commission of an indictable offense
o look at CCQ 2453 - insurer in Goulet tried to use this article to prevent
beneficiary from benefitting from proceeds of crime
 however, court says that we don't punish the beneficiary for getting
the proceeds of the insurance policy, which are NOT the proceeds
of crime
 remember 'principle of dual patrimonies'
 where there is a designation on the insurance policy of a
beneficiary, the proceeds are paid to the beneficiary directly
 otherwise they are paid to the estate of the deceased, which
is the continuation of his/her patrimony
 THIS BEGS AN IMPORTANT QUESTION: if the insurance
proceeds are triggered by death of the insured during
commission of a criminal act, and they are supposed to go to
the estate of the insured, can the indemnity be paid,
considering that he cannot benefit from the proceeds of
crime?
o this question is considered in the Oldfield case
o it is clear that there are creditors who stand to
gain/lose depending on a payout into the estate

In the context of criminal activity, there is also the issue of disclosure - could possibly
make a case for fraud if the insured didn't disclose that they engaged in criminal
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
activity (cocaine trafficking) when asked what their occupation was on the policy
application
- obviously this consideration is immaterial if they begin engaging in such
risky criminal behaviour after the policy is in place
- also an issue with the fact that someone can't be obliged to incriminate
themselves, and thus, asking or expecting them to disclose involvement in
criminal activity on a policy application is unreasonable
Guillet v American Home Assurance Company [2005] I.L.R. I-4349 – CML
Accident and Sickness Insurance
Facts: Appeal by the Insurer from a judgment awarding the plaintiff, Guillet, $200,000
as the benefit payable under a disability insurance policy. Guillet suffered a stroke that
resulted in permanent injury. Insured was playing basketball, collapsed on court and
lost use of legs. Finding of fact that he turned his neck and had a dissection in an artery,
led to stroke, but this relies heavily on medical opinion. Expert opinions on behalf of G
showed that he had no pre-existing condition that would have led to this injury. The
Insurer's disability policy covered bodily injury caused by an accident.
Reasoning:
- TJ held that deliberate acts of ordinary living, such as turning one's neck
during a basketball game, fell within the definition of an accident under the
Insurer's policy. He further held that no person in the position of Guillet
would reasonably expect that turning one's neck during a basketball game
would result in an injury of the nature suffered by Guillet, and therefore, was
an accident within the meaning of the policy.
- There was sufficient evidence for the TJ to make this inference on a balance of
probabilities
Dissent – sees this injury as stroke (which caused the paralysis), but this is all natural
progression of internal injury.

If you qualify the injury as the stroke, then it is the body’s natural reaction, and it is
not an accident leading to indemnity

Wang - cannot give a bodies’ natural reaction the designation of accident.
Ratio (the applicable ratio for this class, not necessarily the ratio of the case): Deliberate acts of
ordinary living that lead to unexpected consequences fall under the category of
accident.
Comments:

Binnie [Gibbons para 57] cannot take in isolation an event to find an accident; one
has to look at the entire chain of events as Martin told us to do.

Reinforces the position that ordinary everyday events can nonetheless constitute
accidents giving rise to bodily injury.
Class Notes
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
-
Ordinary everyday events can nonetheless constitute accidents giving rise to
bodily injury and indemnity under accident insurance
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Insurance Law – May 19
- last class we worked through our definition of accident and how that links up with
intentional fault (accident / intentional fault)
o CVL:
o intentional fault
o intentional fault exclusion is for damage insurance only (CCQ 2464)
o faute lourde (gross negligence) is not intentional fault where the
insured did not also intend the damage
o CML:
o Act + intention to cause damage
o deliberate act – was the outcome unexpected?
o We had to distinguish based on disease – re: Gibbens
- We also spoke about public policy a little bit last class
- There is a difference between CVL and CML: the standard in CML is an objective
standard (Sirois). In CVL, there has been a softening of the objective reasonable
person standard (creeping subjectivity).
- In QC, somewhat a more pro-insured position since they look at that
particular insured
- Both traditions care about the act and intention to cause damages
- The answer is in the Axa case
Now let’s move into the public policy business.
In Goulet and Oldfield, the insured died during the commission of a criminal offence.
 the beneficiary is innocent
 if the insurer intended to exclude this, they should have put the clause in the
policy
 the clause can only apply to indictable offences
 so unless deaths resulting from criminal offences is specifically exclude, we
don’t deprive innocent beneficiary from indemnity
 but in Oldfield, courts reflect on if the beneficiary is the estate of the
insured
o the insured would not get the proceeds
 dual patrimony rule – this would be the continuation of
the patrimony of the insured
Brissette Estate v Westbury Life [1992] 3 SCR 87 – CML
Life insurance – death by accident – public policy
Facts: A married couple bought a term life insurance policy which named the surviving
spouse as the beneficiary. During the course of this policy, the husband murdered his
wife. Husband brought action hoping to recover. Action failed. Now estate of wife
bringing action.
Issue: whether the insurance company was absolved from paying anything under the
policy in these circumstances.
-
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Held: Yes – no payment.
Reasoning: (majority):
- The contract cannot be construed to require payment to the victim's estate; that was
never the parties' intention.
- Moreover, the contract's wording was unambiguous: the money was to be paid to
the survivor.
- Public policy prevents the money from being paid in accordance with the explicit
terms of the contract to a survivor who has acceded to this status by killing the other
party. These terms cannot be rewritten under the guise of interpretation and resort
to a constructive trust is an acknowledgement that this is so.
- Irrespective of the ultimate payee of the insurance proceeds, denial of recovery is
consistent with public policy because it prevents the insured from insuring against
his or her own criminal act.
- And even if denial of recovery was contrary to public policy in this case, it would be
contrary to principles of equity to employ a constructive trust in this case
Ratio: When the original beneficiary is no longer eligible to the proceeds because of
public policy, another person will not be entitled to the benefits unless expressly
indicated in the policy (or by Statute)
Class Notes
-
-
-
in Broiler case, rules of interpretation were set down
In this case, there was a contract. Mary + Gerald. Couple took out a life insurance
policy where both parties were designated as the insured. Beneficiary was the
survivor.
Gerald killed Mary. Obviously Gerald can’t claim, but can the policy be interpreted
such that the proceeds go to Mary’s estate? And can they make a constructive trust
(CML concept: a way of dealing with property when there is no legal principle that
enables one to deal with it)?
Court works through two other cases in order to figure it out:
 Demeter
 Husband was PH. Insured was wife. Husband was beneficiary. Wife
not party to contract (no legal interest in policy). Husband kills wife.
So, husband obviously can’t collect, and since wife has no interest,
could not go to her (or consequently her daughter).
 Cleaver
 Husband = PH + insured. Wife = beneficiary, with statutory
disposition which intervened and said that proceeds were payable to
Husband’s estate if wife could not collect (problem with this is that the
wife is a beneficiary of her Husband’s estate!). Wife murders Husband.
Public policy rule could not take away a right the estate had by statute.
o No such disposition in the case of Brissette nor a provision of
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
payment to the estate of the victim
-
Strong dissent
Dhingra v Dhingra 2012 ONCA 261 - CML
Life insurance - Person who was found not criminally responsible on account of mental
disorder was not prevented by public policy rule from receiving proceeds of insurance
policy
Facts: Appeal by Dhingra from the dismissal of his application for payment of the
proceeds of a $51,000 insurance policy on his deceased ex-wife, Kamlesh. Dhingra
acquired a group Accidental Death Benefit Plan policy with Scotia Life Insurance
Company (the insurer) in June 1998 as the insured pursuant to the insurance policy.
Kamlesh was named as a "Spouse Insured" or co-insured. In June 2006, Kamlesh was
found dead in her home, and Dhingra was charged with second degree murder.
Following a trial, Dhingra was found not criminally responsible by reason of a mental
disorder. Estate of deceased is now arguing that the proceeds should be paid to them as
insurance proceeds should not be paid to Dhingra pursuant to the public policy rule
that a person who wrongfully killed another was not allowed to enjoy profit resulting
from the act of killing. Dhingra is arguing that he is the only one named beneficiary
under the policy and the proceeds should be paid to him.
Issue: Whether a person who was found not criminally responsible on account of
mental disorder was prevented by public policy rule from receiving proceeds of
insurance policy.
Held: No.
Reasoning:
- A person who was found not criminally responsible on account of mental disorder
was not prevented by the public policy rule from receiving the proceeds of an
insurance policy.
- If a person found not criminally responsible on account of mental disorder was not
morally responsible for his or her act, there was no rationale for applying the rule of
public policy, which was founded in the theory that people should not profit from
their crimes or, more broadly, by their own wrongs.
Ratio: A person found not criminally responsible on account of mental disorder is not
barred from recovering life insurance proceeds from the policy of the person they
killed.
Class Notes
-
wife and husband had mutual insurance
husband kills wife but found not guilty because of mental disorder
trying to get proceeds into mother’s estate
does the PP rule apply?
 He was not criminally responsible, therefore not a criminal act. He was
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unable to form an intention for the criminal act. Therefore, he was able to get
the proceeds of the outcome.
 The public policy rule is about moral responsibility. Where there is no moral
responsibility, does not apply.
Under civil law, under CCQ 2443, insurer might be able to deny recovery (attempt
on the life of the insured).
 However, don’t you run into the same issues when you say attempt on the
life if the individual was not aware of what he was doing?
our next subject is the use of the motor vehicle
no fault vs. partial no-fault regimes vs. opening the door for the insurance market
 divergence between QC, Manitoba, and other provinces
Rossy reiterated that in QC we have a no-fault public regime for bodily injury
In QC we do have private insurance for damage and 3rd party liability (for injury
outside of QC)
Other provinces: hybrid system for bodily injury
Rossy c. Westmount (Ville de) 2012 SCC 30 – CVL
Automobile insurance – QC No-fault automobile insurance scheme
Facts: R was killed when a tree fell on the vehicle he was driving in the City of
Westmount. R’s parents and three brothers filed an action in damages against the City
on the basis of civil liability under the Civil Code of Québec. They alleged that, as the
owner of the tree, the City had failed to properly maintain it. The City moved to
dismiss the action under arts. 165(4) and 75.1 of the Code of Civil Procedure. It argued
that the injury resulted from an accident caused by an automobile and, therefore, that
any compensation for personal injury was governed by the Automobile Insurance
Act (“Act”).
Issue: Whether driver’s injuries were “caused by an automobile, by the use thereof or
by the load carried in or on an automobile”. Whether civil claim barred by virtue of
public automobile insurance scheme’s application.
Held: Yes. Yes.
Reasoning:
- The Automobile Insurance Act must be given a large and liberal interpretation to
ensure that its purpose is attained.
- Pram teaches that, in determining whether the Act applies, a court must not look for
a traditional causal link between fault and damage as is routinely done in delictual
or quasi-delictual civil liability cases.
- In any case, at a minimum, an accident arising out of the use of a vehicle as a means
of transportation will fall within the definition of “accident” in the Act and will
therefore be “caused by an automobile” within the meaning of the Act
- Any civil action in connection with the damage caused by that accident will be
barred and victims will have to file a claim with the Société de l’assurance
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automobile du Québec.
The vehicle’s role in the accident need not be an active one. The mere use or
operation of the vehicle, as a vehicle, will be sufficient for the Act to apply.
- The evidence on the record is that R was using the vehicle as a means of
transportation when the accident occurred. This is enough to find that the damage
arose as a result of an “accident” within the meaning of the Act and that the no-fault
benefits of the scheme are triggered. Therefore, the civil claim is barred and R’s
parents and brothers must turn instead to the Société de l’assurance automobile du
Québec for compensation.
Ratio: (1) The Automobile Insurance Act must be given a large and liberal interpretation.
(2) An accident arising out of the use of a vehicle as a means of transportation will be
categorized as an automobile accident as within the act. (3) Civil proceedings for
automobile accidents are barred in Quebec.
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Class Notes
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How far does the concept of damage caused by the use of an automobile go?
Rossy family sued city of Westmount for negligence in failure to maintain the tree
City of Westmount attempted to throw out the case from the get go through art.
83.57 LAAQ (bars any civil proceeding for bodily injury caused by an automobile
accident)
‘caused’ by an automobile is not a Tort meaning in this case (since it’s in Statute)
according to Lamed, this case keeps the parameters of an ‘automobile accident’ very
wide in QC
Lumbermens Mutual Causalty Co v Herbison 2007 SCC 47 - CML
Automobile insurance – “directly or indirectly from the use or operation of a motor
vehicle”
Facts: W, a member of a yearly deer-hunting party, was driving to his designated
hunting stand before sunrise when he thought he saw a deer. He got out of his truck,
removed his rifle, loaded it, and shot at a flash of white, hitting H, another member of
the hunting party. H and his family sought recovery from W’s insurer under a
standard motor vehicle liability insurance policy which, as required by s. 239(1) of the
Ontario Insurance Act, provides coverage for loss or damage “arising from the
ownership or directly or indirectly from the use or operation” of an automobile owned
by the insured.
Issue: Whether victim’s injuries arising “directly or indirectly from the use or
operation” of an automobile.
Held: No.
Reasoning:
- The insurance in this case requires that the victim demonstrate that the liability
imposed by law upon the insured is for loss or damage arising from the ownership
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or directly or indirectly from the use or operation of the automobile.
Test: The questions are: (1) whether the claim is in respect of a tort committed while
using a motor vehicle as a motor vehicle and not for some other purpose, and
secondly, (2) whether there is an unbroken chain of causation linking the injuries to
the use and operation of the vehicle.
- While the addition of “directly or indirectly” to s. 239(1) relaxed the causation
requirement, it did not eliminate the requirement of an unbroken chain of
causation.
 An intervening act may not necessarily break the chain of causation if it arises
“in the ordinary course of things” but merely “but for” causation is not
sufficient.
- In this case, W was using his vehicle for transportation, which is its ordinary
use. However, in an act independent of the ownership, use or operation of his truck,
W interrupted his motoring to start hunting thereby breaking the chain of
causation. The injury cannot be said to have arisen “directly or indirectly from the
use or operation” of the insured truck within the meaning of s. 239(1).
Ratio: An act independent from the ownership, use or operation of a motor vehicle will
break the chain of causation for automobile insurance and the insurer will not be liable
to indemnify.
Comments:
 Consolidated-Bathurst: "the courts should be loath to support a construction which
would either enable the insurer to pocket the premium without risk or the insured to
achieve a recovery which could neither be sensibly sought nor anticipated at the time
of the contract"
 Amos itself rejected a simple but-for test: still must be a causal connection between the
injury sustained and the ownership, maintenance or use of the automobile and which
causal connection is more than incidental, fortuitous or but for.
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Class Notes
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Wolfe drove truck to a hunting stand. Stopped car. Got out. Thought he saw flash of
light and he shot. Ended up hitting another member of the hunting party in the leg.
Herbison is trying to recover under Wolfe’s motor vehicle liability policy.
S. 239 Ontario insurance act: provides coverage for loss or damage “arising from the
ownership or directly or indirectly from the use or operation” of an automobile
owned by the insured.
Issue is the causal connection between the use of the truck and Wolfe’s liability
Substantial reference made to Amos
 Also makes reference to No fault regime
 Sets out test:
 1) Purpose
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
2) nexus or connection between injuries sustained and the use of a
vehicle
- is there an unbroken chain of causation between the injuries caused by Wolfe and
the use of a vehicle?
 SCC ruled Yes. There is an interruption between using the car and the
shooting that caused the injury. He may have been dependent on the car, the
car may have been noisy, but the injury was a separate tortious act and not
connected with the use of a vehicle.
Wolfe interrupted his motoring in order to hunt.
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So for CML, “unbroken chain of causation”
In QC, very wide concept
Citadel General Assurance Company v Vytlingham 2007 SCC 46 – CML
Automobile insurance – underinsured motorist
Facts: The Vs were motoring along an interstate highway when their vehicle was struck
by a large boulder dropped from an overpass by F and R, catastrophically injuring MV
and causing CV and SV serious psychological harm. The Vs received statutory no-fault
benefits from their Ontario insurer and, since F was inadequately insured, they sought
to recover the civil damages F had caused from V’s insurer pursuant to the
inadequately insured motorist coverage found in s. 3 of the Ontario Policy Change
Form 44R. F’s vehicle had been used to transport the rocks to the scene of the crime and
thereafter to escape.
Issue: Whether insured’s injuries “arising directly or indirectly from the use or
operation of an automobile” — Whether tort that cause insured’s injuries intervening
event severable from use and operation of wrongdoer’s motor vehicle.
Held: Yes from V’s perspective, no from F&R perspective. Yes.
Reasoning:
- The claim did not arise from the ownership or directly or indirectly from the use or
operation of a motor vehicle.
- Although the use of F’s vehicle (e.g. transporting rocks) fell within the scope of the
ordinary activities to which automobiles are put, the word “indirectly” is not
sufficient to overcome the requirement for an unbroken chain of causation linking
the conduct of the tortfeasor as a motorist to the injuries in respect of which the
claim is made.
- In this case, the relevant tort consisted of dropping the rocks from a highway
overpass, not transporting rocks across the countryside. F was not at fault as a
motorist.
- The tort was an independent act which broke the chain of causation. It was an
intervening event severable from the use and operation of F’s vehicle.
- Insurance policies must be interpreted in a way that gives effect to the reasonable
expectations of both insured and insurer.
- Amos established that in the context of no-fault benefits, the mutual expectation of
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the parties is that no-fault benefits will be available when an accident occurs during
the “ordinary and well-known” use of their vehicles, provided that some nexus or
causal relationship between the use of the vehicle and the injuries can be
established.
 However, this case does not involve no-fault statutory accident benefits, and
the Court of Appeal erred in transferring without modification the “relaxed”
causation test in Amos to the different context of indemnification insurance,
where it must be shown that the tortfeasor is liable as a motorist.
Ratio: (1) The words “indirectly” do not remove the requirement for an unbroken chain
of causation. (2) The Amos test is established in the context of no-fault benefits and
cannot be transferred to civil liability cases without modification.
Class Notes
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Ontario family driving in NC, USA. Car struck by boulder by individuals throwing
them. Son of family injured. Individuals receive prison sentences. Family goes after
private insurance as well – had coverage for “underinsured motorist rider” (refers to
party who does the damage, however). SO they have to involve vehicle of
perpetrator in order to involve this clause of the policy.
Does the injury arise directly or indirectly from the use of operation from the motor
vehicle (of the perpetrator)?
Court found that chain of causation was broken. Civil liability came from dropping
the rocks, not transporting the rock. The insurer’s liability turned on the nature of
the Tort, not on the size of the rocks. So just because perp needed the car to transport
the rocks, it doesn’t change the fact that the chain of causation was broken at the
time they ceased transporting.
death by accident is often part of the life insurance policy / proceeds
does an individual have to disclose his new found interest in extremely risky
activities (i.e. base jumping) after life insurance is formed?
 No. You don’t have to disclose material change in the risk in life insurance.
The only thing not known in life insurance is when death will occur, all other
factors are factored in at time of formation.
 Under damage insurance, you would disclose (if it was within the control of
the insured)
For individuals to be barred from recovery, they must have an expectation of death.
 Expectation and intention are separate concepts. Even if the act is
intentional, as is in most circumstances (think injecting oneself with Demerol,
base jumping, etc.), one must also have an expectation of death
 Was the act intentional such that he expected to die?
Transamerica v Oldfield 2002 SCC 22 - CML
Life Insurance – Public Policy – Innocent beneficiary
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Facts: When the respondent and her husband P separated, they agreed that P would
maintain sufficient life insurance coverage in lieu of child and spousal support, and that
the respondent would be named the beneficiary until their two children became 18
years old. P died while carrying 30 cocaine-filled condoms in his stomach. The insurer
refused to pay, saying her claim was barred by the public policy principle that a person
should not be allowed to insure against his own criminal act.
Issue: Whether beneficiary’s claim barred — Whether public policy precludes recovery
by innocent beneficiary where death of insured was caused by his criminal acts.
Held: No. No.
Reasoning:
- It is not against public policy to permit an innocent beneficiary to obtain the
proceeds of a life insurance policy where the insured accidentally dies during the
course of a criminal act.
- The public policy rule at issue is that a criminal should not be permitted to profit
from crime. The rule extends to those who claim through the criminal’s estate.
- The respondent has not asserted her right to the insurance proceeds as a successor of
the insured, however, but as an ordinary beneficiary, with the result that her claim is
not tainted by any illegality on the part of her husband.
- It is consistent with justice that innocent beneficiaries not be disentitled to insurance
proceeds merely because an insured accidentally dies while committing a criminal
act. To deny recovery would penalize the victim for the insured’s anti-social
behaviour.
Concurring (J. L’Heureux-Dube): Absent the forfeiture rule or specific exclusions in the
insurance contract, the insurer would have to abide by the insurance contract
Ratio: Innocent beneficiaries are entitled to recover even if insured died as the result of
a criminal act. Public policy exception inapplicable in these circumstances.
Comment:
- Court indicates that it might be appropriate to extend this rule to innocent people
claiming through the criminal’s estate (and thus removing the bar to recovery
through this avenue).
- An innocent beneficiary named in an insurance policy should not be disentitled to
insurance proceeds where the insured dies while committing a criminal act and
does not intend the loss.
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Insurance Law – May 20
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finishing our talk about automobile insurance
in QC, there’s a complete bar to a civil action with respect to bodily injury in an
automobile
 however, if there is a possibility of taking out private insurance, a civil action
against a private insurer is always possible (written in the Code in the same
section as above)
Insurance Act, Ontario
o Interested in art. 239
 239. (1) Subject to section 240, every contract evidenced by an owner’s policy
insures the person named therein, and every other person who with the
named person’s consent drives, or is an occupant of, an automobile owned by
the insured named in the contract and within the description or definition
thereof in the contract, against liability imposed by law upon the insured
named in the contract or that other person for loss or damage,…
Djepic v Kuborovic 32 C.C. L.I. (4th) 17 - CML
Automobile Insurance - Duty to Defend – importance of distinction between auto
and non-auto
F: D and K load a mattress onto the roof of a van. Van belongs to D and he has
insurance from Dominion. Driveway/home belong to K and he is insured by Belair. A
bungee cord comes loose and strikes D in the eye, causing permanent blindness. D sues
K, and K brings this motion against both insurance companies that jointly or severally
they have a duty to defend and indemnify. Both insurers deny coverage.
Issues: 1) Is K insured under D’s auto coverage b/c he was an occupant or in possession
of the van? (2) Does the claim fall within K’s home insurance exclusion (prohibiting
coverage for injuries arising from the use of a motor vehicle)? (2.1) If not, does that
insurer have a duty to defend/indemnify?
Held: No. No. Yes.
Reasoning (Rouleau, J.A.):
Auto Insurance

S. 239(1) of the ON Auto Insurance Act requires auto policies to cover “occupants” of
the vehicle. The definition of occupant does not extend to K in the act of loading a
mattress; since Milenko was not a driver, passenger or a person getting into or out of
or getting onto or off Mijo's vehicle he was not an occupant of the van at the time of
the accident and did not come within the definition of an insured person.

K was equally not in “possession” of the van, as he did not have some measure of
control over the van.

Even a generous reading of the pleadings do not suggest that K was occupying or in
possession of the vehicle.
o Dominion accordingly has no duty to defend.
Home Insurance
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Belair has a duty to defend unless the allegations of negligence against K fall w/in
the express exclusion provisions for claims arising “out of the ownership, use or
operation of a motor vehicle”.

Finds that it is possible in some interpretations to find the claim does not trigger the
exclusion clause, meaning Belair would be liable. This case is based entirely on
pleading and does not have the benefit of findings of fact.
o Belair has a duty to defend (duty to indemnify is not decided).

Distinguishes the facts from Axa v Dominion to find them inapplicable to this case.

“Where the policy is ambiguous, effect should be given to the reasonable
expectation of the parties.”

In any case, based on the early stage of the proceedings and the pleadings, it could
not be determined how the accident occurred. Belair was unable to demonstrate that
the claim arose from the use of an automobile.
Ratio: (1) Reasonable expectation of the insured is an important factor in interpreting
insurance policies and as such, exclusion clauses are to be interpreted narrowly and the
policy is to be interpreted broadly. (2) Duty to defend is broader than the duty to
indemnify. (3) In situations where the insured has more than one policy and a
reasonable expectation that he or she will be covered, one of the policies will be read to
have effect.

Class Notes
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injured person seeking insurance
D is the plaintiff and the injured party. Owner of the van.
K is def, and injury happened in his driveway
D gets struck by bungee cord and loses eye sight.
Lawsuit against K is for negligence.
The question is if either of them have any insurance which would allow for
compensation for the damage.
Who has the duty to defend K for the allegation of negligence?
 In a liability insurance policy, there is also an obligation to assume the
defense of the defendant by the insurer (duty to defend), as long as there’s a
possibility that the liability insurance will be drawn upon
 D has automobile insurance w/ liability. K has homeowner policy w/
liability.
D has to show that he falls under his insurance policy. Must look at act to decide
this, re: 239 Ontario Insurance.
 In the act, occupant means: the driver, passenger, and (c) a person getting into
or on or getting out of or off the automobile; (“personne transportée”)
 Many different arguments tried, but no entry point for D in automobile
insurance
What about homeowner policy? There’s an exclusion clause saying that nothing is
covered for use and operation of automobile
Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Coverage clauses are always interpreted broadly and exclusion clauses are
interpreted narrowly in order to preserve as much as possible the coverage
avail
 Now, K’s homeowner insurer will have duty to defend as long as he can
show that there’s a possibility that K will be liable under this policy. Is there
any possible way to construe the incident that had nothing to do with the
automobile?
 The way that he attached bungee cord has nothing to do with
automobile…
 Bungee cord was defective…
Courts found that there was a reasonable expectation of the insured of the
homeowner policy that his policy might cover this incidence. Thus, there’s a duty to
defend.
Duty to defend is wider than the duty to indemnify
Defense clause is an integral part of liability insurance. Think about it – the insurer
has an interest in making sure that the defense is conducted appropriately.
K’s insurer brought forth the argument that auto insurance is always interpreted
broadly (see Axa, Rossy and so forth). This is to catch many activities under the
umbrella of automobile insurance. They argued that this should also be the case
here. However, courts rejected this argument saying reasonable expectation requires
policy to be interpreted broadly and exclusion to be narrow.
 But you can see there’s some inherent contradiction here

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2503. The insurer is bound to take up the interest of any person entitled to the
benefit of the insurance and assume his defence in any action brought against him.
Costs and expenses resulting from actions against the insured, including those of the
defence, and interest on the proceeds of the insurance are borne by the insurer over
and above the proceeds of the insurance.
Axa Insurance v Dominion of Canada General Insurance [2005] I.L.R. I-4346 - CML
Automobile insurance – Interpretation; Excess Coverage
Facts: WI and SS spent the day in WI's motorboat on a lake. Prior to setting out on the trip to his cottage,
WI took steps to secure a hinged vinyl cushion, covering the shaft of the boat's motor, so that the cushion
would remain stable during the trip. He took a bungee cord and attached it across the cushion to the port
and starboard cleats in the rear of the boat. While he was checking the cord, it suddenly detached from
the port cleat, snapped across the boat and struck SS. SS commenced an action against WI sounding
primarily in negligence. WI had a standard automobile insurance policy with Axa which insured both the
motor vehicle and any trailer attached thereto. Coverage was dependent upon the damages claimed in
the litigation arising out of the ownership, use or operation of WI's vehicle or trailer. WI also had a boat
liability policy with Dominion which insured both the boat and trailer. Coverage was dependent upon
the damages arising out of the ownership, use, operation or maintenance of the boat or trailer. Dominion
also had an Other insurance clause which stated that if the insured other relevant insurance, Dominion
will only come into force after that insurance has been exhausted. Axa claiming that Dominion’s other
insurance clause only applies to indemnity and not duty to defend.
Issue: Whether accident arised out of the ownership, use or operation of a motor vehicle / trailer.
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Held: Yes.
Reasoning:
- In determining whether SS's injuries arose from the ownership or directly or indirectly from the use
or operation of the WI automobile and/or trailer, the test was: (1) Did the accident result from the
ordinary and well-known activities to which automobiles are put? (2) Is there some nexus or causal
relationship (not necessarily a direct or proximate causal relationship) between SS's injuries and the
ownership, use or operation of the vehicle.
- An "ordinary and well-known" activity for automobiles in Ontario is to transport boats secured to
trailers from waterways to homes and cottages.
- As for the causation branch of the test, the securing of a cushion to a boat on a trailer attached to an
automobile as a safety precaution necessary to prepare the boat for proper transport on a highway is
an activity related to the ownership, use and operation of the automobile and trailer.
- Dominion's excess coverage provision applied to both its duty to defend and its duty to indemnify.
Dominion's policy stated that it "will not pay any loss or claim until the amount of such other
insurance is used up".
- WI amounted to an attempt to create a distinction, which did not appear in the policy, between a
claim for indemnity and a claim for a defence. Therefore, Dominion only liable for excess coverage of
duty to defend and indemnity.
Ratio: (1) Standard application of the Amos test. (2) Other insurance clauses for liability insurance include
duty to defend and to indemnify, unless indicated otherwise.
Class Notes
which policy was going to be drawn upon for the compensation for the damages
two insurers insuring the defendant: Axa & Dominion
 Axa = auto policy for car + trailer
 Dominon =
 boat + trailer policy
 homeowners liability policy
o includes damage to stuff considered to be household related
and if you do dumb stuff to other people, w/ exclusion clause
with respect to auto stuff
o also had watercraft inclusion but w/ exclusion once again for
automobiles
- Dr. Isen = def.
- Dr. Sims = plaintiff – bungee cord hits him in the eye
- Two contenders: Axa = auto policy for car + trailer, Dominon: boat + trailer policy
- Amos Test:
 1) Purpose (an ordinary and well-known activity to automboiles)
 Yes
 2) nexus or connection (not necessarily direct or proximate) between injuries
sustained and the use of a vehicle (unbroken chain of events)
 Courts find yes
o Therefore, auto insurance applicable.
o Furthermore, Dominon had an ‘other insurance’ clause which means that their
policy doesn’t come in effect until other insurance has been exhausted
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Questions relating to the Homeowner’s Policy with Intact.
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Questions you think your insurer would have asked you prior to giving you this
policy:
 Review of CCQ 2408. The client, and the insured if the insurer requires it, is
bound to represent all the facts known to him which are likely to materially
influence an insurer in the setting of the premium, the appraisal of the risk or
the decision to cover it, but he is not bound to represent facts that the insurer
knows or is presumed to know because of their notoriety, except in answer to
inquiries.
 Insurers are particularly interested in statements of previous losses
You have to inform the insurer as soon as you know of the loss – utmost good faith
Avenant = rider (endorsements)
 You pay extra for this
Try to answer them, justifying with reference to the policy where possible.
1. Typical early summer question: Am I covered for back up (refoulement) of the
sewer into the basement after a heavy rainfall? (need to look in two places in the
Policy).
a. P. 6 likely not covered: 9.2 + 16.3
b. However, p. 14 includes it. this is an endorsement
2. My waterbed burst and the water soaked through the ceiling. Will I be
indemnified?
a. P. 4 biens meuble - Yes
b. 9.3 p. 6 would exclude
3. Thieves broke into the house on a day when I was at work and stole the diamond
and sapphire ring I inherited from my grandmother (a valuation from Birks done
10 years ago appraised it at $5000) and a painting by A.Y. Jackson (appraised by
an art expert on June 3 2009 at $15,000). i) are these losses covered? Any
limitations ? ii) how will they be valued? (valeur au jour du sinistre ou valeur
de remplacement?)
a. Jewelry capped at 4K valeur de remplacement; painting : valeur au jour,
capped at 10K (p. 4, 8)
b. Limits in 2.2 up to 4K, limit in 2.8 up to 10K
c. 3.2 : valuer a neuf does not apply to painting
d. To have had full protection here, should’ve taken out a rider that would
be a valued policy (establishes in advance how much certain items are
worth) or a replacement value policy
4. In the situation above, I also claim the loss of a mink coat, declaring its value to
be $3500. I have no receipt or photograph. I also claim the costs of considerable
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repair to the floor and walls of the house where the robbers lit a bonfire and
roasted marshmallows. The insurer discovers that not only can I not prove the
value of the coat, but that I never had one. (Hint 2472 CCQ)
a. 2472. Any deceitful representation entails the loss of the right of the
person making it to any indemnity for the risk to which the representation
relates. However, if the occurrence of the risk insured against has entailed
the loss of both movable and immovable property or of both property for
occupational use and personal property, forfeiture is incurred only with
respect to the class of property to which the representation relates.
b. What do we mean by risk?
i. Here: Theft and damage from fire.
ii. Deceitful representation of one of the items would generate the
forfeiture of the indemnity for anything in that class
5. Is there a mortgage clause?
a.
6. Find the defence clause (can only be for liability coverage)
a. P.10, art. 4
7. My daughter, who lives elsewhere, and has her own Tenant’s property and
liability insurance, accidentally caused a fire in my kitchen. My insurer has
indemnified me, and now wants to take an action in subrogation against her
liability insurer. Can it? (Hint: 2501-3, 2474 (2) CCQ).
a. Not a member of the household. Can be sued.
8. Typical winter scenario:
I went to Florida for four days (Mon-Thurs) in February. The weather here was -15C or
colder. I left the heat on at 10C, but a burner on the furnace malfunctioned on Monday,
and by Tuesday morning the pipes had frozen. I had arranged with my neighbour to
come in every day and she called the furnace company to fix the burner, which was
done by Wednesday morning. The pipes had burst in several places when frozen, and
as the ice defrosted, the water shot out and caused extensive damage. Am I covered?
a. Yes, likely covered, p. 6, re: 9.3
9. i) if I hit someone on the green with my golf cart, is my liability covered?
a. P. 10, 7.3.2
ii) find the ‘auto’ exclusion similar to the one in Djepic v Kuperovic
exclusion on p. 9, 1.2
Public Insurance Regime
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Automobile Act of Quebec
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Insurance Law – May 21
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Exam will be one essay, one fact pattern, one set of short answer questions
 Fact pattern dense, but hints given in the names
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liability insurance and timing of the pleadings
liability insurance can be for liability arising out of contract or extra-contractual
proceeds are to be used exclusively to indemnify the victim
 public order provision
2498. Civil liability, whether contractual or extracontractual, may be the subject of a
contract of insurance.
2500. The proceeds of the insurance are applied exclusively to the payment of
injured third persons.
2501. An injured third person may bring an action directly against the insured or
against the insurer, or against both; the option chosen in that regard by the injured
third person does not deprive him of his other recourses.
 This article reduces the amount of litigation overall
2502. The insurer may set up against the injured third person any grounds he could
have invoked against the insured at the time of the loss, but not grounds pertaining
to facts that occurred after the loss; the insurer has a right of action against the
insured with respect to facts that occurred after the loss.
 Things about formation, declaration of risk at formation, things in the course
of the policy not revealed (like material change), something in control of the
insured, and intentional fault of the insured
 After the loss: insured must notify the insurer right after the loss. If the
insured fails to do this promptly, insurer can use this to resist indemnity. But
according to this article, cannot against third party.
2503. The insurer is bound to take up the interest of any person entitled to the
benefit of the insurance and assume his defence in any action brought against him;
Costs and expenses resulting from actions against the insured, including those of the
defence, and interest on the proceeds of the insurance are borne by the insurer over
and above the proceeds of the insurance.
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Nichols v American Home [1990] 1 S.C.R. 801 – CML
Liability Insurance – Duty to defend
Facts: An action alleging fraud was commenced by a Bank against the respondent. The
respondent gave notice of the suit to the appellant insurance company, which had
issued a liability policy to the Law Society on behalf of its members. The insurer denied
any obligation to defend the respondent in view of the exclusion clause, which
provided that the policy did not apply to fraudulent acts or omissions of an
insured. The Bank later discontinued its action, and costs were awarded to the
respondent on a party-and-party scale. The respondent claimed the balance of his costs
(unrecovered balance of the cost of his defence) from the insurer, which refused to pay.
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Issue: (1) Whether insurer under a duty to defend insured when policy not applying to
fraudulent acts – (2) Whether obligation to defend governed by pleadings or by facts as
they emerge at trial.
Held: No. By pleadings.
Reasoning:
- Under the policy, the insurer was under no duty to defend the insured.
- The duty to defend imposed by the defence clause is unambiguously restricted to
claims for damages which fall within the scope of the policy.
- Since the only damages sought against the insured in this case were on account of
fraudulent acts or omissions, and such damages are not payable under the policy,
the defence clause did not apply.
- The duty to defend, while broader than the duty to indemnify, is not so broad that it
arises with respect to allegations which are clearly beyond the scope of the policy.
- General principles relating to the construction of insurance contracts support the
conclusion that the duty to defend arises only where the pleadings raise claims
which would be payable under the agreement to indemnify in the insurance
contract.
 It is not necessary to prove that the obligation to indemnify will in fact arise
in order to trigger the duty to defend; the mere possibility that a claim within
the policy may succeed suffices.
Ratio: (1) The duty to defend does not cover allegations not covered in the policy. (2)
Assessing whether obligation to defend arises is assessed only at the pleading stage and
if they raise claims which would be payable under the policy.
Class Notes
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this case has been incorporated into QC law by Boreal Assurance
Nichols was a lawyer accused of fraud by a bank. He had professional liability
insurance w/ respect to 3rd parties. Bank sues, but then discontinues action. N
claims liability insurance in cost of defending himself against bank.
Policy has an exclusion: policy does not apply to dishonest, fraudulent, criminal,
malicious act on part of the insured
Question becomes: does this exclusion clause only to actual acts of fraud that have to
be proven, or to allegations of fraud as well?
Court says no, and states that the policy is clear. There’s a statement that the duty
of defend is only triggered where the lawsuit contains of a loss or damage which
are or maybe payable under the policy. Thus, fraud would never trigger any
damages payable under the policy.
The duty to defend is only triggered if there is a possibility that the allegations, if
proven, and the damages were to be payable under the policy, will the defense
clause be triggered.
Exclusion clause refers to duty to indemnify. Scope of the duty to indemnify triggers
duty to defend.
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Non-Marine Underwriters v. Scalera [2000] 1 S.C.R. 557 - CML
Homeowner’s insurance – Insurer’s duty to defend
Facts: In 1996, a plaintiff brought a civil action against five B.C. Transit bus drivers,
including the appellant, arising out of various alleged sexual assaults between 1988 and
1992. The allegations included battery, negligent battery, negligent misrepresentation
and breach of fiduciary duty. The appellant owned a homeowner’s insurance policy
issued by the respondent insurer. The policy provided coverage for “compensatory
damage because of bodily injury” arising from the insured’s personal actions, excepting
“bodily injury or property damage caused by any intentional or criminal act”.
Issue: Whether insurer has a duty to defend in this case even though policy contains
exclusion for intentional acts of insured.
Held: No.
Reasoning:
Majority:
- The plaintiff’s claims could not trigger coverage under the policy. Accordingly, the
respondent has no duty to defend.
- The exclusion clause in the policy must be interpreted as requiring an intent to
injure. Where there is an allegation of sexual battery, courts will conclude as a
matter of legal inference that the defendant intended harm for the purpose of
construing exemptions of insurance coverage for intentional injury.
Concurring (important):
- The respondent has no duty to defend the appellant because the plaintiff’s statement
of claim makes no allegation that could potentially give rise to indemnity under the
insurance contract.
 Therefore, if an insurance policy, like the one in this case, excludes liability
arising from intentionally caused injuries, there will be no duty to defend
actions based on such injuries.
- A three-step process must be applied to determine whether a claim could trigger
indemnity:
 (1) A court should determine which of the plaintiff’s legal allegations are
properly pleaded. In doing so, courts are not bound by the legal labels
chosen by the plaintiff. The Courts must decide on the substance of the
allegations contained in the pleadings
 (2) The court should determine if any claims are entirely derivative in nature.
 The duty to defend will not be triggered simply because a claim can be
cast in terms of both negligence and intentional tort. A claim for
negligence will not be derivative if the underlying elements of the
negligence and of the intentional tort are sufficiently disparate to
render the two claims unrelated. However, if both the negligence and
intentional tort claims arise from the same actions and cause the same
harm, the negligence claim is derivative, and it will be subsumed into
the intentional tort for the purposes of the exclusion clause analysis. If
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neither claim is derivative, the claim of negligence will survive and the
duty to defend will apply.
 (3) The court must decide whether any of the properly pleaded, nonderivative claims could potentially trigger the insurer’s duty to defend.
- Sexual battery requires the plaintiff to prove that a reasonable person should have
known that the plaintiff did not validly consent to the sexual activity in
question. Since non-consensual sexual activity is inherently harmful, any injuries
resulting therefrom are intentionally caused, and the exclusion clause would apply.
- The plaintiff’s claims of negligence and breach of fiduciary duty are either not
properly pleaded or are subsumed into the sexual battery because these claims are
based on the same facts and resulted in the same harm. Therefore the exclusion
clause applies equally to them.
 Thus, there being no potentially indemnifiable claim, the respondent has no
duty to defend.
Ratio: To determine whether the duty to defend is triggered, one must look to see if the
claim is potentially indemnifiable. In order to determine this, refer to the three-part test
set out by Iacobucci. (2) Where there is an allegation of sexual battery, courts will
conclude as a matter of legal inference that the defendant intended harm for the
purpose of construing exemptions of insurance coverage for intentional injury.
Class Notes
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Scalera, Sansalone = defendants
Being civilly sued by Plaintiff claiming bus drivers (defendants) sexually assaulted
plaintiff
The defendants went to their liability insurer. Liability insurer denied coverage of
duty to defend because it’s bodily injury tied to a criminal act.
However, there were allegations of negligence.
Courts said you can’t look at a set of facts that show them to be intentional or
criminal to make a “derivative claim”
 You can’t use the same exact things on the one hand use them to prove an
intentional criminal act and also call them negligent
If you have to examine what the substance of the claim is, ask which of the plaintiff’s
allegations are properly pleaded? You look beyond the words of the substance of the
allegation to determine what is pleaded.
This case sets out test in determining what is being pleaded
In QC, Wellington motion:
 While the obligation to defend is clearly set out in the Civil Code of Quebec
(L.Q., 1991, c. 64) at Article 2503, the "Wellington" motion goes a step further,
allowing the insured to immediately demand that the insurer act upon this
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obligation and, in addition, immediately reimburse any expenses already
incurred.
 The theory behind the "Wellington" motion is largely based on the premise
that the obligation to defend is far broader than the obligation to indemnify;
the first resting on simple allegations while the latter rests on proven facts. As
outlined in Nichols, the obligation to defend exists when, following a prima
facie review of the allegations, it appears that the acts or omissions are
covered by the policy. The obligation to indemnify, on the other hand, exists
only when such acts or omissions are proven.
 Reference: lexology.com
- How far can you go assessing the true nature of the claim / allegation and
eliminating any derivative claims (such as the whiffs of negligence potentially
claimed)
 Can you go to extrinsic evidence?
 Courts have said it is possible to look at extrinsic evidence
 Extrinsic evidence can also be consulted to ascertain the true nature of
the claim at the preliminary allegation stage
- What about a situation where the insurer is not obliged to defend, but is then is
called upon to indemnify?
Hector Hoyos v Chubb Assurances [2008] QCCA 1296 - CVL
Liability insurance – duty to defend – prima facie intentional fault of the accused
negated at trial
Facts: H is owner of property in QC and is insured for property and liability by the
respondents, which contained an exclusion for intentional faults by the insured. A
visitor was injured at his QC residence. She pursued a case in front of an American
tribunal, alleging that the suffered the injuries while being a victim of a sexual assault
by H. H successfully denied sexual assault. Now is claiming reimbursement for lawyer
fees and the indemnity paid out to the victim.
Issue: Is the insurer liable to pay the indemnity? Is the insurer liable to pay defense
costs retroactively?
Held:
Reasoning:
- firstly, the principles of CML from Nichols have been adopted into CVL through
Boreal Assurances and are interpreted through CCQ 2503 (duty to defend article)
- the TJ in this case erred in accepting the motion to dismiss and thus saying that the
insurer had no obligation to defend or to indemnify. She mingled the obligations to
defend and to indemnify.
- The obligation to defend depends on allegations which could be covered by the
insurance contract, whereas the obligation to indemnify is given birth if the alleged
acts are proven.
- If prima facie duty to defend arises, the insurer is not liable to pay indemnity if it is
shown that the actions of the insured really fall under an exclusion clause.
- In the current case, the situation is inversed. In any case, if the insurer does not have
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an obligation to defend does not make it impossible for them to have an obligation
to indemnify if the insured can show that the injury sustained by the victim was the
result of an accident not an intentional fault.
- Therefore, the case should go back to the Superior court to allow the insured to
demonstrate this.
Ratio: the lack of a duty to defend does not eliminate the duty to indemnify if insured
shows that his actions fall under policy coverage.
Class Notes
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madam suffers injury to her arm while visiting Mr. Hoyos at his country place in
QC.
Hoyos informs his 3rd party liability insurer
Year later allegation of sexual assault happening in the context of this injury
There is a settlement; no admission of responsibility, aggression, or sexual assault,
etc.
After settlement is concluded, Hoyos goes to liability insurer requesting
reimbursement
Can the insurer be liable?
Would the obligation to defend be triggered retroactively?
 CoA didn’t really deal or conclude this issue. No outcome given.
CoA has kept the possibility of indemnity under the policy alive, however.
 i.e. if no duty to defend, but case concludes on an allegation covered under
the policy.
Legal subrogation
General provisions of subrogation under the civil code
 Subrogation can be by contract (conventional) or be legal
 1652. Subrogation may be conventional or legal.
What is subrogation?
 1651. A person who pays in the place of a debtor may be subrogated to the
rights of the creditor; He does not have more rights than the subrogating
creditor.
 You have: A, B, C
 B owes $ to C
 Therefore, B = debtor, C = creditor
 A pays $ to C
 A debt can be an object of commerce; there can be something in it for A to be
the debtor, and something in it for C for A to be debtor as well
 So with respect to this debt, A is subrogated to the rights of C.
 “stepping into the shoes of”. If you step into the shoes of C, you become the
subrogated creditor.
Subrogation in insurance law:
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1656. Subrogation takes place by the sole operation of law… (5) in any other
case provided by law:
 2474. The insurer is subrogated to the rights of the insured against the
person responsible for the loss, up to the amount of indemnity paid.
The insurer may be fully or partly released from his obligation towards
the insured where, owing to any act of the insured, he cannot be so
subrogated.
o Subrogation here is automatic since it is an operation of law
Let’s map it out:
 A, B (insured), 3rd party causes damage
 So let’s say B makes claim against A for these damages, A says okay, and
pays
 A can be subrogated in B’s shoes against the person who caused the damage,
up to the amount of the indemnity paid
If for whatever reason, the insured does something to close of the insurer to be able
to exercise the right against the 3rd party, that may partially relieve the insurer of
the indemnity to be paid out to the insured
2402. …Any clause of a policy whereby the insured consents, in case of loss, to effect
an assignment of claim to his insurer that would result in granting his insurer more
rights than he would have under the rules on subrogation is also deemed not
written.
Underlying principle of subrogation is indemnification (not windfall or gain)
Idea of subrogation applies in damage insurance (property & liability)
 Does not apply in life insurance
 Life insurance is a non-indemnification type of insurance
idea of legal subrogation also diffuses the earlier concern of added risk with respect
to intentional acts and hypothecary creditors (two-contract theory). The insurer can
become a subrogated creditor and pursue the insured for his / her intentional act.
 To further explain, imagine in this scenario of an intentional act by the
insured, the insured party now becomes a 3rd party damager and the bank
then becomes the only ‘insured’ in the contract. Therefore, the insurer pays
the bank and steps into their shoes to go after the 3rd party.
There’s a limit to subrogation:
 CCQ 2474…The insurer may never be subrogated against persons who are
members of the household of the insured.
 Household is not taken to be a literal definition; partly a function of the
relationship
 But what if the member of the household has a liability insurance policy?
 Allstate insurance gives the answer to this and the answer was no
because you can’t do indirectly what you can’t do directly
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Punitive Damages
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Whiten v. Pilot Insurance Co., 2002 SCC 18 – CML
Punitive damages
Facts: The appellant house caught on fire on night. Their family fled the house wearing
only their night clothes. It was minus 18 degrees Celsius. The husband gave his
slippers to his daughter to go for help and suffered serious frostbite to his feet. The fire
totally destroyed the home and its contents, including three cats. The respondent
insurer made a single $5,000 payment for living expenses and covered the rent for their
temporary cottage for a couple of months or so, then cut off the rent without telling
them. The appellant’s family was in very poor financial shape. The respondent also then
alleged that the family had torched its own home, even though their was no air of
reality to this claim. The jury awarded compensatory damages and $1 million in
punitive damages. A majority of the Court of Appeal allowed the appeal in part and
reduced the punitive damages award to $100,000.
Issue: Whether policyholder entitled to award of punitive damages__ Whether jury
award of $1 million in punitive damages should be restored.
Held: Yes. Yes.
Reasoning:
- The jury’s award of punitive damages, though high, was within rational limits. The
respondent insurer’s conduct towards the appellant was exceptionally
reprehensible.
- It forced her to put at risk her only remaining asset (the $345,000 insurance claim)
plus $320,000 in costs that she did not have. The denial of the claim was designed to
force her to make an unfair settlement for less than she was entitled to.
- Insurance contracts are sold by the insurance industry and purchased by members
of the public for peace of mind. The more devastating the loss, the more the insured
may be at the financial mercy of the insurer, and the more difficult it may be to
challenge a wrongful refusal to pay the claim.
- The jury decided a powerful message of denunciation, retribution and deterrence
had to be sent to the respondent and they sent it.
- The obligation of good faith dealing means that the appellant’s peace of mind
should have been the respondent’s objective, and her vulnerability ought not to have
been aggravated as a negotiating tactic.
- An award of punitive damages in a contract case requires an “actionable wrong” in
addition to the breach sued upon. Here, in addition to the contractual obligation to
pay the claim, the respondent was under a distinct and separate obligation to deal
with its policyholders in good faith. A breach of the contractual duty of good faith
was thus independent of and in addition to the breach of contractual duty to pay the
loss.
- Punitive damages should only be imposed if:
 there has been high-handed, malicious, arbitrary or highly reprehensible
misconduct that departs to a marked degree from ordinary standards of
decent behaviour.
 Compensatory damages are insufficient to accomplish the objectives of
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retribution, deterrence, and denunciation
- $1 Million award is high but is within the range given to juries
Ratio: (1) Punitive damages are awarded when there is an actionable wrong in addition
to the breach sued upon. (2) Insurers in an insurance contract have a distinct and
separate obligation to deal with its policyholders in good faith, since it is a peace of
mind contract. (3) Punitive damages should only be imposed if there has been a highhanded, malicious, arbitrary or highly reprehensible misconduct that departs to a
marked degree from ordinary standards of decent behaviour and where Compensatory
damages are insufficient to accomplish the objectives of retribution, deterrence, and
denunciation (among other factors listed in case).
Branco v American Home Assurance Company 2013 SKQB 98 – CML
Punitive Damages
Facts: Action by the plaintiff, Branco, against the defendant insurers, AIG and Zurich
Life Insurance for benefits related to a disabling workplace injury, aggravated damages
for mental distress, and for punitive damages. In 1999, the plaintiff was injured in a
workplace accident when a steel plate dropped on his foot. He was unable to continue
working. AIG was advised of the injury, triggering a WCB-equivalent claim under the
AIG policy. Even though the plaintiff's Portugal physician advised AIG that surgery
was unsuccessful and that the plaintiff was permanently disabled, the plaintiff traveled
to Saskatchewan in 2001 and 2002 at the request of AIG where he was examined by
specialists and his disability was confirmed. Despite agreement that the plaintiff was
entitled to an annual permanent functional impairment payment, independence
allowance and a lifetime payment, AIG delayed payment of benefits, and even when
the did, only made partial payment. Secondly, the plaintiff filed a disability claim with
Zurich in 2003. Zurich did not accept the claim until 2009 despite medical reports of the
plaintiff's disability and associated psychological consequences. In 2009, Zurich paid
long term disability benefits, but continued to deny further coverage to the plaintiff's
family. In the interim, the plaintiff was forced to borrow from family and refinance a
family member's house to support themselves.
Issue: Should punitive damages be awarded in this case?
Held: Yes.
Reasoning:
- AIG and Zurich breached their policies by failing to pay benefits to the plaintiff, and
in so doing, breached duties of good faith and fair dealing.
- The WCB-equivalent coverage provided by AIG and the long term disability
insurance provided by Zurich were both peace of mind contracts, an object of
which was to secure a psychological benefit.
- AIG discontinued benefits for inappropriate and malicious reasons in order to
create undue hardship on the plaintiff to force him into acceptance of an
unreasonably low offer of settlement. Zurich's delay in paying benefits was
egregious and completely reprehensible.
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The mental distress caused by a breach of those contracts was within the reasonable
expectation of the parties.
- The conduct of the defendant insurers persisted over a lengthy period of time
without rational justification, in the face of medical evidence establishing the
plaintiff's disability, and with awareness of the hardship inflicted upon the plaintiff.
- Their actions showed a pattern of abuse of an individual suffering from financial
and emotional vulnerability. A deterrent award of punitive damages was required
to discontinue exploitation of vulnerable insured persons.
- Punitive damages were assessed against AIG in the amount of $1.5 million and
against Zurich in the amount of $3 million.
Ratio: Punitive damages will be awarded to deter exploitation of vulnerable insured
persons. This can be evidenced by the length of period the conduct persists over, the
availability of evidence establishing the plaintiff’s claim, and the awareness of
reasonable expectation by the insurers of the hardship inflicted upon the plaintiff.
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Insurance Law – May 22
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Subrogation
Insurerinsured3rd person wrongdoer
 Insurer  3rd person wrongdoer
No subrogation in insurance of persons because the contract does not undertake to
pay 3rd party actions or some unlooked for uncertain event (in principle).
 Thus, in cases where death is caused by a third party, insurer does not have a
recourse in subrogation
 However, you could have conventional subrogation in life insurance
permitting the insurer to go after the third party in the event that death is
caused by the wrongful act of a third party
At CML, there are two conditions for subrogation (similar to CVL):
 Existence of an enforceable right
 Right that the insured might have
 Subrogation requires (in its raw state – before statute intervention) requires
that the insurer pays full indemnity
 This has been modified by various statutory dispositions
o In Ontario, subrogation is available earlier – as soon as any
payment is made whatsoever
Example:
 Insured has contractual relationship
 Many subcontractors who are all working on the same large construction
project
 The insurance policy of the insured will generally include a clause that would
also subsume all subcontractors in their insurance policy
 There is the commercial practice of considering the insured and
subcontractors as one unit (therefore no right of subrogation for insurer)
Who is included in the concept of ‘the insured’ is important and can be a limit to the
right of subrogation in insurance
Commonwealth Construction v Imperial Oil [1978] 1 S.C.R. 317 - CML
Property Insurance – Right of Subrogation
Facts: A general contractor, Wellman-Lord, entered into a contract with Imperial Oil
Ltd. and a subcontractor, Commonwealth, was charged with the installation of process
piping. In the course of that installation a fire took place, which was admittedly the
responsibility of Commonwealth. The total damage was covered under property
insurance. The named insured included “Imperial Oil Limited and its subsidiary
companies and any subsidiaries thereof and any of their contractors and
subcontractors”. An action against Commonwealth claimed the cost thereof. The action
had been brought by the insurers alleging subrogated rights obtained from the
owner, Imperial, as well as the general contractor, Wellman-Lord. Commonwealth
denied the possibility for the insurers to invoke subrogation.
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Issue: Does Imperial Oil’s insurer’s have a right of subrogation in this case, and
therefore a cause of action against Commonwealth?
Held: No.
Reasoning:
- Starting point is that subrogation cannot be obtained against the insured himself.
- In the case of true joint insurance the interests of the joint insured are so inseparably
connected that the several insureds are to be considered as one with the obvious
result that subrogation is impossible.
- In the case of several insurance, if the different interests are pervasive and if each
relates to the entire property, albeit from different angles, again there is no question
that the several insureds must be regarded as one and that no subrogation is
possible.
- In the context of the construction contracts in this case, the various trades had, prior
to the loss, such a relationship with the entire works that their potential liability
therefor constituted an insurable interest in the whole.
- Commonwealth was an insured whose insurable interest extended to the entire
works prior to the loss so that, in accordance with the basic principles, the insurers
had no right of subrogation.
- Also, the principle that even if insurers have a subrogation right in a given case, they
may renounce that right, was applicable here. Under the policy it was to the rights of
the insured, i.e.,the entire group including Imperial, Wellman-Lord and
Commonwealth, that the insurers were subrogated, not to the rights of some
members of this group against another member of the same group.
Ratio: (1) If there are several parties to a contract and each party has an insurable
interest in the whole of the subject matter of the insurance (property), the several
insurers are going to be considered one and no subrogation will be possible. (2) An
insurer cannot be subrogated to some members of the insured group against other
members of the same group (cannot subrogate against a common insured).
Class Notes
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insurer does not have a right of subrogation against its own insured
insurer takes on the risk – including the risk of things connected with the principle
insured
Somersall v Friedman [2002] 3 S.C.R. 109 - CML
Automobile Insurance – Subrogation
Facts: Two of the respondents suffered serious injuries in a motor vehicle collision and
brought an action against the driver of the other vehicle, an underinsured motorist. The
respondents later entered into a limits agreement with the tortfeasor, without notice to
the appellant, their insurer. This agreement provided that (1) the tortfeasor would
admit liability at trial and (2) the respondents would not sue him in excess of his
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liability coverage. The respondents sought to recover the remainder of their damages
from appellant pursuant to their coverage known as the SEF 44 Endorsement which
requires that an insured must be “legally entitled to recover” damages from the
underinsured motorist in order to collect payment from the insurer.
Issue: Whether the limits agreement entered by respondents justify denial of claim by
insurers.
Held: No.
Reasoning:
Majority:
- The limits agreement, like a limitation period, does not block the action. It has no
bearing on the right of the insured against the tortfeasor at the time of the accident,
which is the relevant time for the determination of legal entitlement.
- Furthermore, the respondents have not interfered with the appellant’s rights of
subrogation to such an extent as to deprive it of a right it acquired in the contract.
- Only a clear and unambiguous obligation upon the insured to maintain a claim in
tort and not to waive it in exchange for a payment can support an interpretation
favourable to the appellant.
- Here, the appellant’s right of subrogation has not yet arisen (insurer’s right of
subrogation will not arise until the insured has been fully indemnified), and in any
event there is no evidence that the respondents did not honestly and in good faith
believe that it was prudent and wise to enter into the limits agreement
- Absent any evidence of actual or probable loss, the insurers should not be
allowed to raise an alleged breach of subrogation rights in order to bar a claim
made in good faith by the insured.
Dissent: The legal entitlement must be present when the claim is made. The respondents
had no legal entitlement as of the date of their claim against the appellant. Furthermore,
SEF 44 Endorsement explicitly makes subrogation part of the package accepted by both
parties to the insurance contract. If the insured has prejudiced the subrogation rights of
the insurer then it is open to the insurer to refuse the claim.
Ratio: (1) The legal entitlement available in cases of damages against an underinsured
or uninsured motorist are assessed at the time of the accident. (2) A limits agreement,
foregoing action to further pursue the tortfeasor for additional damages, does not bar
recovery for the insured against his insurer for additional compensation (limiting an
insurer’s rights in subrogation does not prejudice the insured to his claim against that
insurer – insurer must show that he suffered actual damages)
Class Notes
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we have a car accident. P+G injured in car accident. J caused the accident. P+G sued
J. They settled the case with J, with something called “The Limits Agreement”.
Limit agreement had three terms:
 J would admit liability
 P+G would not claim anything from J or his insurer above J’s insurance limit
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of $200K
 J’s insurer was going to pay P+G $50K in advance
Afterwards, P+G go after their own insurer for the difference between full amount
of damage and the $200K. They had an Underinsured Motorist Endorsement in their
contract (re: Vytlingham). #44 was their purchased insurance in case they suffered an
accident or damages from a motorist who did not have sufficient insurance.
 The clause said that it’ll cover whatever the insured is “legally entitled to
recover from an inadequately insured motorist…”
 This idea of legally entitled is problematic as it has a limiting effect
Insurer says we’re not going to pay you the difference because you are no longer
legally entitled to recover from J because you settled
 They further state that P+G have cut them off from recovering from J as well
(you’ve cut me off of my right of subrogation since insurer dos not have more
rights than insured!)
Question is at what point in time do we consider “legally entitled to recover”
Is that also the time at which the insurer becomes obliged to indemnify?
Courts look to decided cases of the limitation period: the parallel was where the
injured party let the limitation lapse with respect to the wrongdoer
SCC says the right of subrogation wasn’t worth much anyways in this case since J is
impecunious
So how do we solve this timing problem?
 Court says it isn’t logical to only look at the point at which claim is made
against insurer
 The obligation crystalizes at the time the loss occurs
 This is also when the legal entitlement to recover is born
Para. 30 important: “In my view, the answer must be that the insurer becomes
obliged to make the payment the moment the claim of the insured against the
tortfeasor comes into being, that is, at the time of the accident…the obligation of the
insurer, therefore, comes into being at the same time as the obligation of the
tortfeasor to pay damages.”
Back to the right of subrogation (Iacobucci):
 It’s not worth much in this case
 It’s optional
 Premium covered the risk anyways w/o subrogation rights since they are
unpredictable/random anyways
Courts state that absent actual / proven loss, you cannot refuse indemnification
based on loss in right of subrogation
Case tells us two things:
 Meaning of legally entitled to recover and when we assess that (at the time of
accident – when legal entitlement is crystalized)
 Debate between Iacobucci and Binnie about what is the nature of the right of
subrogation
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Intermediaries
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the role of the intermediary is a highly regulated job
 qualifications you have to meet
 regulated in terms of who can undertake these roles and what functions they
can do
if intermediary is acting on behalf of the insurer or whom the insurer is holding out
or representing as his agent, insurer may be found liable for his acts
law of intermediaries matters in QC; doesn’t matter in CML
 1458. Every person has a duty to honour his contractual undertakings; Where
he fails in this duty, he is liable for any bodily, moral or material injury he
causes to the other contracting party and is bound to make reparation for the
injury; neither he nor the other party may in such a case avoid the rules
governing contractual liability by opting for rules that would be more
favourable to them.
In CML: law of agency
Even though the person might be called insured in other provinces, the question is
for whom is the person acting? Who is the principle: the insured or insurer?
 Generally in QC ‘courtier’ is acting for insured, ‘agent’ is acting for insurer
 The term ‘broker’ is more ambiguous and debated about side they are on
 Mostly the broker is acting for the insured
 Also must look at the roles being performed by intermediary
 Look for indiciae of authority
 We assess whose side the intermediary is on at the moment that we identify
what the flaw in the transaction is
Fine’s Flowers et al v General Accident Assurance Co et al 17 O.R. (2nd) 529 - CML
Intermediaries – Agent held liable to insured; breach of K and Torts
F: Damages arised to Fine’s flowers from the shut-down of the heating system in the
plaintiff's greenhouses. The agent had arranged boiler and machinery coverage with the
defendant insurer: Fine’s wanted “full coverage”. No insurance was placed on the
water pumps and motors which pumped water from the wells into the storage tank
which supplied water to the boilers. The fact was brought to the agent's attention by the
insurer (the Ir had offered a different policy to cover the risk of failing water pumps)
but it did not consider it necessary to so inform the plaintiff. The heating system failure
was due to wear and tear and the loss was not covered by the policy. Furthermore,
Fine’s had a relationship with its agent for a very long time.
I: Is the agent’s failure to arrange proper insurance protection against this event make
him liable? Is he liable in Torts or K?
Held: Yes. K.
R (Wilson J.A.):
- The plaintiff was relying upon the agent to see that he was protected against all
foreseeable, insurable risks.
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The only risk insured against as far as the heating system in the greenhouses was
concerned was damage to the boilers themselves.
- If an agent was unable to obtain insurance for his principal in accordance with his
instructions, he was under a duty to report this to his principal. He could not stand
by and let his principal assume he was covered. Still less could he lead him to
believe that he was covered.
- Full coverage meant coverage against all foreseeable insurable risks and the risk
which the agent failed to protect the plaintiff against was both foreseeable and
insurable.
- The agent was therefore in breach of its contract and its breach was the cause of the
plaintiff's loss. Estey, C.J. would have found the agent liable on the grounds of
negligence and breach of equitable duty rather than on the law of contract.
- Even though wear and tear would never have been covered, facts reveal that the Ir
had sent a letter inquiring whether the additional coverage on motors and pumps
required.
- So the agent was wrong, because the Agent was acting as the mandatory of Fine. So
he breached his mandate to obtain full coverage.
- Because of the long-term relationship, he ought to have known that this was a key
element of the operation.
- He failed to advise Fine’s of the gap in coverage.
- Additional point: is there consideration?
- Consideration to agent is hidden inside the payment of the premium.
Concurring: (Estey J.):
 Finds it more difficult to find a meeting of the minds and determine what the
intentions of the parties were.
 2nd possibility - he finds in negligence:
o Special relationship
o Reliance on the agent
o Pumps are essential
o Failure to report the coverage when it was not present
 Also considers 3rd possibility: Equity.
o Is there a fiduciary relationship. If yes, then the Agent must act in the best
interest of the client.
o Remedy: Disgorge the profit.
Ratio: An agent can be personally liable in torts or in contract for the damages sustained
by an insured due to the agent’s failure to act properly as the insured’s mandatory or
diligently.
Comment: (1) Look a Consolidated Bathurst because the facts are similar. (2) The agent
should have known what the client needed. Where there is a mandate, you must look at
what was included in the mandate to find Agent’s breach and cause him to be liable for
the damages. In the current law, agent is obligated to be aware and know the insured’s
business.
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Class Notes
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Leading case on the personal responsibility of the agent
We understand that representative is acting on the behalf of the insured
Id operates Fine’s Flowers. Had policy for boiler heating system. Has used the agent
himself for a long time. Id asks agent to obtain full coverage – an all inclusive policy
for any risk of damage. Agent gets policy with exclusion for wear and tear and
water pump. Pumps seized up – boilers didn’t have enough water and heat went off
in the greenhouse.
Facts reveal that agent knew about limitations and did not informed Id.
Irrespective of whether liability arises out of contractual obligation or tort, there was
an on going relationship of longstanding between the insured and the intermediary
 The agent, if purchasing insurance on behalf of insured, is required to know
the insured’s business or to know what the insured means
 Presumption of minimal knowledge
The agent:
 Failed to inform himself of what the client needed
 Failed to get coverage for what the client requested
 Failed to advise client about the coverage he did obtain and the gaps in the
coverage
All of the failures went against the special relationship and constituted the liability
for the agent
Audio Works v Canadian Northern Shield Insurance Co. 31 C.C.L.I. 240 - CML
Intermediaries – Agents have a duty to provide quality service and advice.
Divergence in application and policy must be disclosed to Insured in writing.
Applies to both Insurer and Agents (Wagner).
Facts: The insured was in the business of providing audio-sound equipment to various
venues. The insured's audio-sound equipment was damaged while in transit to such a
venue during a motor vehicle rollover. The defendant insurer, Canadian Northern
Shield Insurance Company ("CNS"), refused to indemnify the insured for the loss on the
basis that the policy did not cover this type of risk. The insured had sought insurance
coverage for its audio-sound equipment on and off premises and while "in transit", and
for replacement cost coverage. Bosko / LDM represent the Id. McL / Wagner represent
the Ir. D Both sets of intermediaries engage in negligent acts.
Issue: Are the insured’s covered for in-transit risks? If so, who is liable for coverage?
Held: Yes. Insurer’s agent, insurer, and the insured’s agent.
Reasoning:
- The insured’s agent Wagner did not advise the insured's insurance agents that the
CNS policy would not include "in transit" coverage or replacement cost coverage.
- On the basis of common law, the insured and its agent were entitled to rely on the
insurer and its agent to provide the insurance coverage for which the insured had
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applied, unless the insurer advised, in writing, of the material differences between
the application for insurance and the policy. In failing to do so, the insurer and its
agent breached the duty of care owed to the insured.
o Since it is a multi-risk policy and not a fire insurance policy, there was no
statutory requirement to inform the insured in writing about a material
change in the policy. However, based on the jurisprudence relied upon by
the plaintiff, the insurer owed a duty of care to the insured in the
circumstances of this case and the insured and its agent were entitled to
rely on the insurer and its agent to provide the insurance coverage for
which it had applied, unless the insurer advised, in writing, of the
material differences between the application for insurance and the policy.
o Court applies KP Holding, and upholds Robitaille.
- CNS, as principal, was vicariously liable for the negligence and breach of contractual
obligations of its agents to the plaintiff's agents, and hence to the plaintiff.
- Also the language of the policy with respect to whether the policy included "in
transit" coverage was ambiguous and confusing. As such, the Court concluded that
the ambiguity should be interpreted in favour of the insured, and that the CNS
policy included "in transit" coverage  contra proferentem
- In addition, the insured's insurance agents were also personally liable in failing to
adequately read the policy and advise the insured of the lesser coverage (re:
replacement value v. cash value).
- Agent tries to say: Ir, you didn’t check up on me so it’s your fault that I didn’t notify
of the divergence. Ct does not consider this. Agent cannot fail to do its job and then
claim a failure to supervise.
- Lastly, the insured was not contributorily negligent in failing to read the policy of
insurance as it was entitled to rely upon the expertise and advice of its agents and
to assume that it would receive the coverage for which it had applied.
Ratio: (1) Robitaille rule is upheld in the CML. (2) Insurer is liable for the negligence or
breach of contractual obligations of its agents. (3) Negligence on the part of the
insured’s agent can also make him liable. (4) Ambiguity resolved through contra
proferentem (5) Failure to supervise insurer’s agent not valid defense by insurer agent (6)
Insured is entitled to rely upon its agent and thus will not be held contributorily
negligent for failure to read policies (slightly different in QC).
Class Notes
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You have presence of agent acting for the insured, and an agent acting for the
insurer and they both ‘goof up’
Representative of the insured lost his license…
You have a combination of a Hadley Shipping situation, you had a situation of
intermediary mess up, you also have some interesting reflection on the classification
issue (KP Holdings)
Person acting for the insured can’t oppose a statement by saying the insured failed
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to act diligently
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2504. No transaction made without the consent of the insurer may be set up against
him.
 We’re under liability insurance here
 Doesn’t really apply to subrogation because of case
 But if this is done, it does not mean that the coverage is eliminated between
the insurer and insured
Allstate cie d’assurance c. General Accident cie d’assurance [2001] R.J.Q. 10 (CA) - CVL
Subrogation – CCQ 2474, 2501 – subrogation prevents recourse against members of
the household
Facts: Damage to father’s house caused by son, who is insured. Father’s insurance pays
indemnity, and then this insurer sues his son (person causing the damage who has a
separate insurer) under CcQ 2501.
Issue: Can Allstate Insurance bring a claim against the insurer of a third party who is a
member of the household of their insured?
Held: No.
Reasoning:
In QC, the right of subrogation is denied against all persons close to the insured. In
addition, if the legislator per CcQ 2472 wanted to avoid proceedings between family
members, this action risks failing the objective of the legislator as in the proceedings,
family members will likely be testifying for adverse parties. For example, a father
would be called to expose the faults committed by his son, while the son could claim
having acted in an irreproachable way. We’ll essentially be doing indirectly what the
legislator wanted to avoid directly.
CcQ 2474 declares that there is no subrogation in these types of situations – the right is
never born, it does not exist and it is not just the recourse that has been paralyzed. CcQ
2501 is dependant on the existence of a right of action against responsible third parties.
It is an recourse which presupposes a link in rights between the victim and third
parties (but since right is never born, can’t be used!).
Ratio: (1) The insurer can never be subrogated into the rights of the insured against
persons who are members of the household of the insured even if the action would be
against that individual’s insurance company. (2) Not only is recourse just not allowed,
the right never comes into existence. (3) The obligation of the legislator in drafting CCQ
2474 was likely to avoid all conflict and proceedings between family members.
Comment:
2474. The insurer is subrogated to the rights of the insured against the person
responsible for the loss, up to the amount of indemnity paid. The insurer may be fully
or partly released from his obligation towards the insured where, owing to any act of
the insured, he cannot be so subrogated. The insurer may never be subrogated against
persons who are members of the household of the insured.
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2501. An injured third person may bring an action directly against the insured or
against the insurer, or against both. The option chosen in that regard by the injured
third person does not deprive him of his other recourses.