Canada: Quebec Superior Court Rules On Apportioning Contribution Among A Plurality Of Property Insurers

On December 14, 2016, the Quebec Superior Court handed down a judgement on a legal issue which has not come up often in Quebec case law, that of determining what legal framework applies to the relationship between two property insurers covering the same risk. In La Coop Fédérée v. La Compagnie d'assurance générale Co-operators et al.1 , the Court ruled on a claim by an insured, Coop Fédérée (Coop), against two of its insurers for a loss caused by a phishing scheme which led to a fraudulent transfer of $4.9 million in August 2014.


The facts

The Coop held two property insurance policies which could potentially cover the loss. The first one was issued by Co-operators General Insurance Company (Co-operators) and provided $15 million of coverage subject to a $500,000 deductible. The second one, with Liberty International Underwriters (Liberty), provided $1 million of fraud and embezzlement coverage with a $100,000 deductible. Liberty had agreed to indemnify its insured up to its insurance limit whereas Co-operators had denied coverage for various reasons. The Coop sued Co-operators in the Superior Court. Co-operators forced National Bank of Canada (NBC) to intervene in that case; Co-operators claimed that NBC should bear the $4.9 million loss since the amount fraudulently paid had been borrowed by the Coop from NBC.

On April 21, 2015, Liberty paid the Coop the sum of $1 million corresponding to the amount of its insurance coverage. On February 9, 2016, Liberty sued Co-operators, seeking $726,124.47 which, according to Liberty, corresponded to the amount of the contribution it overpaid for the loss suffered by the Coop. The actions of Liberty and the Coop were joined before the Superior Court in March 2016.

Justice Michel Déziel heard the case. He began by determining whether the loss suffered by the Coop should be borne by the Coop or NBC. The transfer of funds in U.S. dollars by the Coop to the defrauder placed its bank account in overdraft. The Coop therefore had to borrow an equivalent amount from NBC, the bank instructed by the Coop to transfer the funds. Co-operators claimed that NBC should bear the Coop's loss since the $4.9 million belonged to NBC pursuant to the Bills of Exchange Act. Justice Déziel rejected that argument by Co-operators from the outset and held that the Coop became the owner of the $4.9 million NBC advanced to it as soon as NBC advanced the funds to cover the overdraft in its account. The Court also determined that NBC had fulfilled all its obligations to check the signatures and verification codes and that, accordingly, the Coop should bear the entire loss of the embezzled $4.9 million.

Which policy covers the loss?

The Court then conducted an in-depth analysis of both Co-operators' policy and Liberty's policy to determine which applied to the loss. Since Co-operators' policy covered all the Coop's property and operating losses for all risks which could directly affect it without any exclusion that would apply to fraud, the Court held that the loss suffered by the Coop constituted a risk covered by that policy.

As for Liberty's policy, the Court asked whether that insurance policy was "specific" for the risk of phishing fraud since the policy specifically covered fraud and embezzlement. The distinction between a general and a specific policy is important since, according to the Civil Code of Québec, a specific policy applies to a loss as primary insurance where there is plurality of insurance2 . The Court began by pointing out that a policy was not specific merely because of its name. The way Liberty's policy was worded, it covered all the Coop's property as well as all risks which could directly affect it, with a series of exclusions limiting the scope of the policy. According to the Court, the fact that the policy contained those exclusions did not make it a specific risk policy.

In its analysis, the Court considered the six criteria developed in case law3 to determine whether there is plurality of insurance: the presence of two or more insurers, identical purposes, identical risks, identical interests, the simultaneousness of the insurance and the presence of joint coverages which are not subordinate to each other. Justice Déziel held that those six criteria were met in this case.

Determining each insurer's contribution

After ruling that there was a plurality of insurance, the Court analyzed Liberty's action in view of the third paragraph of article 2496 C.C.Q., which provides that the indemnity apportioned among the insurers, in the absence of a specific policy, is calculated "in proportion to the share of each in the total coverage". Since Quebec civil law does not say how the apportioning of the indemnity among the insurers should be calculated, Justice Déziel did not hesitate to turn to the common law authorities. He based himself on a Supreme Court of Canada decision in Family Insurance Corporation v. Lombard Canada Ltd. and Canadian University Reciprocal Insurance Exchange4 to rule that each insurer must share the burden of indemnifying the loss in proportion to its policy limit. More specifically, the judge accepted Liberty's argument that the calculation used by the Quebec Superior Court in 1999 in a similar situation5 should be applied to the Coop's case. According to that calculation, Liberty's contribution for the Coop's loss was $273,000 (i.e. the proportion of its insurance limit ($1 million) out of Co-operators' total insurance limit ($15 million) multiplied by the amount of the loss, less the applicable deductible). Since Liberty had paid the Coop its coverage limit following the loss, its $726,124 claim represented the overpayment owed to it by Co-operators. The Court therefore held that Co-operators had to bear the balance of the loss suffered by the Coop for a total of $5,521,195, which included paying Liberty its entire claim of $726,124.

Conclusion

This decision is very interesting since it provides useful information about the factors which guide the courts in determining whether a policy is specific or general. It also sheds some light on the interrelation between insurance policies covering the same loss.

Note that the deadline to appeal this decision has not expired.

Norton Rose Fulbright Canada (André Legrand and Josée Beaudoin) acted for Liberty in this matter.

Footnotes

1. La Coop Fédérée v. La Compagnie d'assurance générale Co-operators et al. (December 14, 2016), Montreal, 500-17-092055-154 and 500-17-092579-161 (S.C.).

2. Art. 2496(3) C.C.Q.

3. American Home Insurance Co. v. Duret et al., 1989 CanLII 921 (QCCA).

4. Family Insurance Corporation v. Lombard of Canada Ltd. and Canadian University Reciprocal Insurance Exchange, [2002] 2 S.C.R. 695.

5. Protection Mutual Insurance Company v. La compagnie d'assurance Guardian du Canada (November 9, 1999), Montreal 500-05-028603-973 (S.C.).


About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

Law around the world
nortonrosefulbright.com

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 Mondaq.com.

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

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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