Canada: Chartis Case

Last Updated: August 7 2013
Article by Heenan Blaikie

"Limited Judicial Discretion: The Superior Court Refuses to Compel an Insurer to Renew to Provide Coverage in the Context of Liquidation"

I. Introduction

Can a court compel an insurer to renew a fixed-term contract of insurance with a company that is undergoing liquidation? According to Justice Robert Mongeon of the superior court of Quebec, the answer to this question is "no."

On June 4, 2013, Justice Mongeon held that to force the Chartis Insurance Company of Canada ("Chartis") to extend coverage to Penson Financial Services Canada Inc. ("PFSC") after its policy terminated "would be tantamount to writing a new agreement" and to requiring that the insurer assume unwanted risk. An overview of the facts and legal considerations of this case will explain how Justice Mongeon reached this conclusion.

II. The Facts

PFSC is an indirect, wholly-owned subsidiary of Penson Worldwide Inc., a company which until mid-2012, provided a broad range of critical securities and futures processing infrastructure products and services to a global market. On January 11, 2013, PWI and some its subsidiaries filed for voluntary proceedings under Chapter 11 of Title 11 of the United States Bankruptcy Code.

On February 1, 2013, Ernst & Young was appointed Liquidator ("Liquidator") of PFSC in accordance with sections 207 and following of the Canada Business Corporations Act ("CBCA"). Prior to ceasing the majority of its operations, PFSC provided securities and clearing services and, in accordance with IIROC Rule 400, had taken out an insurance policy to secure its ongoing operations, specifically a Financial Institution Bond or FIB Form 14 ("FIB"). Chartis provided that FIB.

III. The Effects of Non-renewal

The fixed-term policy provided by Chartis expired on May 30, 2013. It was on a "claims made and reported" basis, and contained no renewal provision. There was no "tail" coverage once the contract was terminated. Hence, claims filed after May 30th, 2013 concerning events that occurred during the term of the policy would not be covered.

Chartis' refusal to renew its insurance policy with PFSC lies at the heart of this case. The Liquidation Order required, among other things, that PFSC's insurance coverage be neither "discontinued, altered, repudiated, terminated nor cancelled." Though the Liquidator found alternative coverage from Trisura Guarantee Insurance Company ("Trisura") for a comparable premium, that proposal failed to cover claims relating to events that occurred prior to May 30, 2013. A gap between the Chartis coverage and the Trisura proposal thus became a real possibility.

The Liquidator claimed that the compelled renewal of the Chartis contract was its only viable option. Chartis disagreed, arguing that the simple lapse of its policy did not violate the Liquidation Order. In addition, to renew its coverage, PFSC would have had to submit a new application and provide updated financial information. There is no automatic renewal of a FIB and the issuance of a new bond is discretionary and subject to a complete underwriting of the risk. For Chartis, the forced renewal of the insurance contract under such circumstances would be akin to ordering a new contract of insurance, and would result in the Court exceeding its discretionary power. Finally, Chartis insisted that the Trisura proposal would meet IIROC Rule 400 requirements, and allow PFSC to continue to operate as a Dealer Member.

IV. Analysis by the Court

Justice Mongeon first considered whether the Court could compel Chartis to renew its insurance coverage.

The preamble of section 217 of the CBCA sets out the discretionary powers that the Court may exercise in connection with either a liquidation or a dissolution. Although this section enumerates a series of elements that may be included in a court order, it is, nevertheless, silent with regard to the imposition of new contractual terms and conditions on a third party dealing at arm's length.

Justice Mongeon then considered three cases. He began by distinguishing the current case from Re: Village Green Lifestyle Community Corporation, in which Justice Pepall refused leave to cancel a valid insurance policy affecting an Ontario retirement community under receivership. According to Justice Mongeon, the Ontario case simply suggested that, where necessary, a court can require an insurer to abide by the terms of its commitment to cover until the end of its undertaking.

Re: Les Boutiques San Francisco and Re: Bock Inc., two insolvency matters, proved more interesting. In Re: Les Boutiques San Francisco, Justice Gascon, then of the superior court, found that he could not impose the terms and conditions of a renewal contract created after the Initial Order. He could, however, require two insurers to abide by the terms of their offers that were still open for acceptance at time of the Initial Order. In Re: Bock Inc., Justice Lalonde ordered the reinstatement of a distributorship agreement under a temporary Safeguard Order. He based his "unprecedented" decision on a finding of bad faith in the unilateral resiliation of the distributorship agreement by the supplier. In denying leave to appeal, Justice Marie-France Bich, J.C.A., nonetheless felt compelled to address the issue of the discretionary power of the judge to order the cancellation of a notice of termination, and to order the specific performance of the agreement. Drawing from Justice Bich's comments, Justice Mongeon wrote, "the 'revival' of an extinguished contract may, in law, cause serious legal issues which may one day have to be seriously debated before an Appelate Court." In short, the question of forcefully reviving a contract is still very much alive, and its resolution is likely closely connected to the legal considerations and particular facts of a case.

Justice Mongeon thus ended his analysis by considering the factual and legal issues of the case at hand. The facts suggested that though PFSC would be placed in the uncomfortable position of assuming the risks related to a gap in coverage, it could nevertheless carry on its business under the Trisura proposal as a Member Dealer in accordance with IIROC Rules. According to Justice Mongeon, the terms of Justice Gouin's Initial Order indicated a concerted effort to maintain a contractual status quo. That said, the Initial Order stopped short of mentioning renewals not otherwise part of contracts coming to term. As Justice Mongeon stated, "[t]here is a good reason for this: courts are not there to impose new contractual terms. ... [I]f the Court would agree to renew the FIB on a 'claims made reported' basis, the question becomes '...for how long?..'." Theoretically, such a scenario could extend well past the date of a dissolution order. Clearly, such a situation would be untenable.

V. Conclusion

Without an existing legal framework on which to base an order extending FIB coverage, the Court cannot impose such an obligation on a non-consenting party dealing at arm's length. In the Chartis case, the insurance policy did not include a renewal clause, and had reached the end of its term. To force Chartis to extend coverage in the circumstances would not only be tantamount to writing a new agreement and forcing the insurer to assume unwanted risk, but it would also exceed the discretionary powers mentioned in section 217 of the CBCA. Justice Mongeon therefore dismissed the motion with costs against PFSC.

Though insurance law tends to be fact-specific, the outcome of the Chartis case is noteworthy. Justice Mongeon clarifies the roles of both the Court and the insurer in the context of a liquidation order. A court cannot compel a third party to act against its will and to renew an insurance contract. As a consequence, the insurer need not assume an active role insofar as providing new coverage once a fixed-term policy terminates. Simply put, to allow a contract to lapse is not the same thing as cancelling or otherwise terminating it. The insurer is free to make that decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.