On June 23, 2011, the Quebec Court of Appeal1 ruled on the scope of Article 2397 of the Civil Code of Québec (CCQ), which states that "the contract of reinsurance has effect only between the insurer and the reinsurer."
The Boiler Inspection and Insurance Company of Canada (Boiler) was claiming $8,508,613 from the defendants – i.e. the amount it paid to American Home as reimbursement for the indemnity that American Home had paid to its insured, Domtar. In support of its action, Boiler pleaded that it was acting under the terms of its reinsurance contract, and that, further to the payment that it had made, it was legally and contractually subrogated to the rights of American Home, which was itself subrogated to the rights of the insured.
The Court confirmed that Boiler was the reinsurer, and that no legal relationship existed between Boiler and Domtar. It added that there cannot be any subrogation by operation of law between a reinsurer and the insured. The legal subrogation specified in Article 2474 CCQ only operates in favour of the insurer, who then becomes subrogated to the rights of its insured against the party responsible for the loss. Article 2474 CCQ does not deal with subrogation in favour of a reinsurer.
Boiler also argued that it benefited from conventional subrogation. The court dismissed this argument because no deed of assignment had been provided to the defendants in accordance with Article 1641 CCQ. The deed of assignment would have had to have been sent to the defendants for it to be opposable to them.
Boiler's argument, from reading the judgment, was that it was agreed with Domtar and American Home that the insurance coverage, in this case for equipment breakdown, would be insured specifically by Boiler. Boiler contended that American Home was acting as nominee. This is probably why Boiler instituted the action as if it were Domtar's insurer. The court concluded, instead, that the insurance and reinsurance contracts were clear and contained no reference to a nominee agreement or a stipulation for another. This argument was of no help to Boiler, whose action was dismissed due to the absence of a legal relationship.
This decision is significant because it is one of the few rulings by the Quebec Court of Appeal that deals with the scope of a reinsurance contract.
Footnotes
1 2011 QCCA 1194.
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