Recent changes to the Civil Code of Québec (CCQ) may bring some insurance relief to public companies who are struggling with rising premiums to insure their directors and officers in Quebec. These public companies have been disadvantaged relative to companies located in other Canadian provinces. Amendments which were made to article 2503 by the Quebec National Assembly on May 27, 2021, will help determine whether certain categories of insurance contracts and insured companies are exempt from rules set out in articles 2500 and 2503 of the CCQ. These rules concern the exclusive allocation of insurance proceeds as part of the payment to injured third persons, as well as insurers' obligation to assume the defence of persons entitled to the insurance benefit.
Below are five key points summarizing the current state of the codified insurance regime and the impact of these latest amendments on various stakeholders in the insurance sector:
1. If the insured applies for insurance in Quebec or if the policy is signed or delivered in Quebec, the law of this province will take precedence when the insurance policy relates to a Quebec property or interest, as well as when it is subscribed in Quebec by a person residing in that province. Similarly, Quebec courts will have jurisdiction to hear a dispute based on a contract of insurance when the insured or beneficiary resides in Quebec, when the insurance relates to a Quebec interest or when the loss took place in that province.
2. In Quebec, it is a matter of public order for insurers to defend their beneficiaries, assume the defence costs and expenses of their beneficiaries, and pay interest on the proceeds of the insurance, over and above the proceeds of the insurance. This means that, even if the parties agree, they cannot deviate from these obligations nor provide to the contrary.
3. Unlike Quebec, most other jurisdictions have more flexible rules with respect to defence costs and policy limits. The approach in Quebec differs in that it does not allow the insurer's liability to be limited to the amount set out in the insurance contract, particularly in respect of specialized insurance for directors and officers.
4. Some insurers operating under the Quebec regime have attempted to establish insurance coverage structures to modify the application of these rules. However, the validity of such structures remains to be confirmed by the courts.
5. Based on amended article 2503, the legislator can now enact regulations to exclude certain categories of contracts and insured from the regime. Accordingly, the insurer is obligated to pay the costs in addition to the insurance proceeds. The proposed regulation aims to level the playing field with respect to the insurance regime for directors and officers of public companies.
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