Background. On May 27, 2021, the Québec government amended article 2503 of the Civil Code, relaxing the requirement for insurance companies to assume the defence costs of the insured, even when costs go beyond the limits of the insurance policy. Once finalized, likely in fall 2021, there will be some flexibility to allow policies to exclude defence costs from coverage or include them only for certain "categories of insurance contracts" and "classes of insureds."
Impact. We expect this to decrease the cost of premiums for large corporations and make it easier to insure large commercial and institutional projects in the province, while preserving the original intent of article 2503 — to ensure that individuals, particularly third-party victims, aren't financially penalized by expensive legal battles that erode policy limits. It's a win for insurance companies, who will once again find Québec an attractive market, and large insured corporations and institutions, whose insurance costs should decrease in expensive, hard-to-insure industries such as construction.
Top tip. Large insured organizations should have their insurance program reviewed by their broker to determine where legal costs should be included in the policy and what lines of business can be carved out to save on premiums. Insurance companies need to ask their underwriters to rework policy wording to ensure compliance with the new law in both official languages, and have new wording reviewed by their internal or external legal team.
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