Canada: Top Insurance Rulings From 2016: Lessons For Insurers

Last Updated: January 18 2017
Article by Clyde & Co LLP

In 2016, Canadian courts issued a number of decisions that will have an impact on the landscape of insurance litigation. With the beginning of a new year, we take this opportunity to reflect on some of those key decisions, and the lessons insurers can draw from them.

1. False representations by the insured

The Quebec Court of Appeal held that an insurer may cancel an insurance policy based on false representations made by the insured even when the policy is required by law. As a result, an injured third party could see its claim against the insurer rejected. The case involved the retirement planning of a couple who entrusted their money, through their holding companies, with brokerage firm Triglobal Capital Management. A portion of these funds was inadequately used by Triglobal's president in running a Ponzi scheme through the firm using offshore funds in the Bahamas and the Cayman Islands. Triglobal's liability insurer, Axa Insurance Company, considered the policy to be nullified by that fraud. The Court of Appeal upheld the trial court's decision to recognize Axa's right in voiding the insurance policy on the basis of misrepresentation and concealment of material facts by the insured confirming therewith that an insurer, ultimately, must be able to rely on the insured's representations.

Click here to consult our full coverage of the matter.

2. Liability exclusion clauses

In a somewhat unusual case, the Québec Court of Appeal ruled that a claim brought by the Aldo Group against Moneris Solutions Corporation did not trigger a duty to defend in the presence of a clause in the policy excluding coverage for any liability contractually assumed by Aldo. Aldo and Moneris, an agent of BMO, had signed a contract to allow MasterCard payments in Aldo's shops. The agreement provided that Aldo would pay a penalty should any data breach due to the failure to meet security standards arise. Aldo's systems were hacked in 2011 and MasterCard imposed a $4.9M penalty on Moneris, which in turn charged Aldo for contribution. Considering the penalty unjustified, Aldo sued Moneris and MasterCard. Aldo's insurer refused to cover its legal fees arguing that there was no coverage under the policy wording. The Québec Court of Appeal took the view that Aldo assumed liability contractually with a third party and therefore the policy excluded the insurer's duty to defend its client.

3. Liability to third party for brokers providing inaccurate information

In recommending an insurance product, a broker may have a duty to accurately inform a third party of possible risks and to act in good faith. That's what the Quebec Court of Appeal ruled in Roy v. Lefevbre, a case involving the 1992 sale of a house in which a broker, trying to help bridge the gap between offer and counter-offer, advised the buyer to finance the operation through a "fully prepaid" insurance policy on the seller's life. Understanding that the premiums were to be "prepaid for life", the seller agreed to the arrangement and did not secure in any other way the payment of premiums. Years later, the accumulation fund used to pay the premiums ran dry. As the broker and buyer refused to pay the premiums, the seller, having to take it upon himself to keep the policy in force, disbursed the premiums and took legal action against the buyer, the broker and his brokerage firm to recover these amounts. The Court ruled that, knowing the details of the whole arrangement, the broker had the duty to accurately inform both the buyer and the seller of the risks associated with this kind of financial product. The Court held that the broker had an extracontractual duty of good faith and a duty to inform towards the seller. Since the buyer's obligation towards the seller was contractual and the broker's was extracontractual, they were both held liable in solidum. In short, brokers could now be held liable towards third parties with whom they have no contractual relationship.

Click here to consult our full coverage of the matter.

4. The insurance broker and the duty to defend

The Superior Court of Quebec ruled in Lamontagne v. Intact that the insurer's duty to defend its insured is not imposed upon the insurance broker. In 2007, a couple bought a house equipped with a fuel oil heating system. When the couple contacted their insurance broker to get coverage for oil leaks, the broker wrongfully noted that the house had a solid fuel heating system — information that was passed on to the insurer who then delivered a policy with a standard exclusion for oil leaks. Two years later, the house's oil tank leaked coverage was denied. They sued their insurer and settled the matter in 2012. However, during the 2013 cleanup, it was discovered that the contamination might have spread to their neighbour's property. After they notified their neighbors and the environment ministry, they received an official demand letter from their neighbours and an administrative sanction from the ministry. Turning to their insurer, they were once again told there was no coverage. Unusually, they also wanted to force their insurance broker to take up their defence. The Court decided that the broker did not undertook under any agreement to take up the case of the insureds and to assume their defense in the event of an action being brought against them. As such, the only recourse afforded to the insureds was to file a claim in negligence against the broker.

5. Payment of pre-tender defense costs

Last August, the Court of Appeal for British Columbia in Lloyd's Underwriters v. Blue Mountain Logconcluded that, under a commercial general liability policy, the insurer's right and duty to defend is triggered only once it has received a notice of a claim against the insured, as there was a clause in the CGL policy stipulating the insured must not incur expenses related to the claim without the insurer's consent. Overturning the trial court ruling the BC Court of Appeal held that any pre-tender legal costs remain the insureds' responsibility. In doing so, it accepted Lloyd's argument that giving notice is a "logical ... precondition to assuming the duty to defend as the insurer cannot defend or control a claim it does not know about."

6. Flooding: presumption against municipalities

Quebec's Court of Appeal confirmed, in Ville de Québec c. Équipements E.M.U., the application of the presumption holding the municipalities liable for flooding caused by the backup of a city's storm sewer network. The case involved litigation between the City of Québec and several insurers and a forklift dealer that suffered damages to its buildings due to flooding caused by several incidents of heavy rainfall causing the backup and overflow of the city's storm sewer network. Over years of caselaw, the courts have established that a municipality is responsible for its aqueduct, sewer networks and collection and drainage systems. This decision confirms that a municipality must take all reasonable measures to ensure that its infrastructures are adequate, all the more so when it agrees to allow construction in areas that it knows are vulnerable to flooding.

7. "Faulty workmanship" exclusions

In one of the major insurance rulings of the year, the Supreme Court of Canada held that a "faulty workmanship" exclusion in a "Builder's Risk" insurance policy precludes from coverage the cost of recleaning the windows of an office building under construction, but not the cost of replacing those windows which were damaged due to use of inappropriate tools and cleaning methods. Importantly, in Ledcor Construction Limited et al. v. Northbridge Indemnity Insurance Company et al, the top Court rejected the Court of Appeal's test of physical or systemic connectedness to determine whether property damage is excluded as the cost of making good faulty workmanship or covered as resulting damage. The Ledcor ruling sheds light on the boundary between "making good faulty workmanship" and "resulting damage" in situations where faulty work causes damage to the very object of the work.

Click here to consult our full coverage of the matter.

8. Insured's obligation to collaborate

The Supreme Court of Canada recently declined to hear an appeal from Quebec where an insured was denied indemnity because of his refusal to be examined by his insurer on the circumstances surrounding the theft of his car. The case, 9221-2133 Québec inc. (Centre Mécatech) c. Intact Assurances inc., has handed insurers a strong argument they can use to get their insureds to cooperate during post-loss investigations. The Court found that "it is not up to the insured to decide whether his or her statement is necessary, nor to decide the manner in which the insurer should conduct its investigation."

Click here to consult our full coverage of the matter.

Top Insurance Rulings From 2016: Lessons For Insurers

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
Related Topics
 
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions