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  • Amendments to the Charter of the French Language: Impacts on the Insurance Sector

    Bill 96 – An Act respecting French, the official and common language of Québec (the “Act”) - was adopted on May 12, 2022 and assented to on June 1, 2022, its effective date. Certain provisions are already in force; for other provisions, a transitional period ranging from several months to three years will apply. This document provides an overview of the modifications included in the reform of the Charter of the French Language (the “Charter”) that will have an impact on various aspects relevant to insurance sector stakeholders doing business in Québec. Forming the centrepiece of the announced changes, the reform of the Charter includes strengthened oversight mechanisms governing the use of French as the language of commerce and business, as well as linguistic rights in the areas of employment and communications with agents of the State. Overseeing the language of commerce and business The reform of Section 55 of the Charter stipulates that contracts of adhesion and related documents must be drawn up in French. However, effective June 1, 2023, a French-language version of these contracts and documents must be provided to participants First Alinea of this amended section reads as follows: 55. Contracts pre-determined by one party and the related documents, must be drawn up in French. The parties to such a contract may be bound only by its version in a language other than French if, after its French version has been remitted to the adhering party, such is their express wish. The documents related to the contract may then be drawn up exclusively in that other language.1 Therefore, contractual clauses in which the parties simply indicate that they agree to be bound by a contract drawn up in a language other than French are no longer sufficient. The Civil Code of Québec stipulates that “A contract of adhesion is a contract in which the essential stipulations were imposed or drawn up by one of the parties, on his behalf or upon his instructions, and were not negotiable.”2 To qualify a contract, the importance of the negotiated terms and conditions and their connection with the contract must be analyzed. It is generally recognized that if the essential stipulations are not negotiable, the contract is a contract of adhesion, even though some less important terms and conditions may have been negotiated by the parties. This amendment codifies the interpretation adopted by the Office québecois de la langue française (“OQLF”) and the courts,3 particularly given that negotiated contracts were not covered by this provision. To remove any doubt concerning this interpretation, Bill 96 was amended so as not to extend the scope of this requirement to include contracts containing “printed standard clauses”. The insurance contract Since their essential stipulations are typically drawn up by the insurer, insurance contracts and their endorsements are contracts of adhesion, as a general rule. Therefore, the French-language version of all related documents — notices, letters, insurance product summaries — must be provided to clients before they can decide whether they will be bound by a version drawn up in another language. During the parliamentary debates, Minister Jolin-Barette commented that Section 55 of the Charter only referred to consumers and that contracts between two companies could be drawn up in the language of their choice if that was the express wish of both parties. The term “consumer”, however, is not defined in the Charter. Ambiguity remains as to whether the Minister’s comment only referred to contracts containing standard clauses or whether contracts of adhesion were included. We will have to wait for the publication of the interpretation bulletins and the annotated edition of the act to determine whether Section 55 of the Charter applies to commercial insurance policies. In the meantime, we are of the opinion that if Québec lawmakers had wanted to exclude commercial contracts of adhesion, they would have expressly done so by means of an amendment. Insurance contracts in effect before June 1, 2023 will not have to be translated, nor will insurance contracts renewed without modifications since under those circumstances, the contract would not be regarded as a new contract.4 However, if an existing insurance contract is renewed with significant modifications, it will be regarded as a new contract and the French-language version thereof must be provided to clients so they may validly express their wish to be bound by a contract drawn up in a language other than French. Given that in most cases, insurance contracts are sent out to policyholders by regular mail or email, effective June 1, 2023, insurers, agents or brokers, as applicable, will have to send both the French-language and English-language versions of the contract in the same mailing or simply send the French-language version thereof. It is important to note that the Act provides for an exception to the requirement to provide the French-language version if: The insurance policy has no equivalent in French in Québec; and The insurance policy is originates from outside Québec or is not widely available in Québec.5 [unofficial translation] In all likelihood, this exception will only apply to highly specialized insurance products and will be interpreted restrictively given the Act’s primary objective. Unlike insurance contracts and related documents, invoices, receipts, discharge notices and other similar documents may be sent out in English if the French-language version remains available on terms that are at least as favourable.6 Services and marketing in French The Act introduces the Charter’s new Section 50.2, which states that businesses must respect consumers’ fundamental linguistic right to be informed and served in French. The same section reiterates this requirement with respect to “a public other than consumers” to whom are offered goods and services and who must henceforth be informed and served in French by businesses. Unlike consumers, however, clients who are businesses do not enjoy a fundamental linguistic right protected by the Charter. As regards marketing, the addition of the words “regardless of the medium used” to Section 52 of the Charter confirms that marketing documents in “hard copy” format must be in French, as must websites. If a version is available to the public in a language other than French, the French-language version must be available on terms that are at least as favourable. This provision took effect on June 1, 2022. Chat-type platforms or those facilitating direct communications with the insurer should make it possible for members of the public to communicate with the insurer’s representatives in French at all times. Communications with insurance agents and brokers Effective June 1, 2022, insurers are required to communicate in French with insurance agents and brokers who express the desire to do so.7 In addition, all information documents sent to insurance agents and brokers regarding underwriting or claims must be in French if they so wish. As regards contractual agreements between insurers,  insurance agents  and brokers, the need to provide a French-language version depends on the nature of the contract, i.e. whether it can be qualified as a contract of adhesion. French in the workplace Effective June 1, 2022, all companies doing business in Québec must comply with the following requirements in the area of employment rights: Respect employees’ right to work in French8; Use French in all written communications sent to employees; Ensure that all offers of employment, promotion or transfer; individual employment contracts; employment application forms; and documents concerning employment conditions and training sent to employees are drawn up in French;9 Take all reasonable means to avoid requiring employees to have knowledge  or a specific level of knowledge of a language other than French for employees to obtain employment or to maintain their position, including in particular:   Assess the actual needs associated with the duties to be performed; Make sure that the language knowledge already required from other staff members was insufficient for the performance of those duties; Restrict as much as possible the number of positions involving duties whose performance requires knowledge of or a specific level of acknowledge of a language other than French.10 It should be noted that individuals whose employment contracts are currently drawn up in English have until June 1, 2023, to ask their employer to translate their contract. Effective June 1, 2025, businesses with 25 employees or more in Québec must meet additional francization requirements for their Québec employees to obtain a francization certificate, including: Registering with the OQLF; Submitting an analysis of the status of the French language within the business; Putting in place a francization program within three months following an OQLF request to that effect. The above requirements were already in effect for businesses with more than 50 employees in Québec. French as the language of the civil administration The Act includes various modifications with respect to French as the language of the civil administration. The Québec government will be required to make exemplary and exclusive use of French, with certain exceptions. Effective June 1, 2023, all agents of the State and provincial government bodies will be required to communicate in French with all persons, including business representatives. All documents exchanged with the civil authorities, as well as all contracts and permits, must be drawn up in French. Insurance sector stakeholders outside Québec should expect to receive more communications in French from the Autorité des marchés financiers (“AMF”) given that the AMF is a body of the “civil administration”. Penalties It should be noted that new powers will be granted to the OQLF enabling it to conduct investigations and impose administrative and disciplinary penalties. As regards infractions of the Charter’s provisions, the Act provides for fines ranging from $3,000 to $30,000 for businesses and from $700 to $7,000 for individuals. These fines are doubled for a second offence and tripled for further offences. In addition, if an infraction continues for more than one day, each day constitutes a separate infraction. If an infraction is committed by a corporate director or officer, the Act provides for fines ranging from $1,400 to $14,000. Questions of interpretation Various provisions have raised questions of interpretation that are still difficult to resolve at the time of writing. Interpretation bulletins and an annotated edition of the act will be published by the provincial government with a view to guiding businesses in the application of the Act; they will also help to clarify certain provisions that remain ambiguous for the time being. For further information on changes concerning trademarks, please consult a recent publication by our colleagues specializing in intellectual property. Sec. 55, Para. 1 of the Charter. Civil Code of Québec, CQLR ch. CCQ-1991, Sec. 1379, Para. 1. Westboro Mortgage Investment vs. 9080-9013 Québec inc., 2018 Superior Court of Québec 1. Leave to appeal dismissed 2019 Court of Appeal of Québec 1599. Didier LLUELLES, Droit des assurances terrestres, 6th ed., Montréal, Éditions Thémis, 2017, Para. 186. Sec. 21.5 and Sec. 55 of the Charter. Sec. 57 of the Charter. Sec. 50.2 of the Charter. Sec. 5 and Sec. 50.2 of the Charter. Sec. 41 of the Charter. Sec. 46 of the Charter.

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  • Complaint processing: New framework to come for financial institutions and financial intermediaries

    Last September, the AMF published its draft Regulation respecting complaint processing and dispute resolution in the financial sector (the “Draft Regulation”). The consultation period for it ended on December 8, 2021. The AMF is currently reviewing the many comments it received. The Draft Regulation1 aims to harmonize and improve complaint processing in the financial sector by providing for new mechanisms to ensure prompt and efficient complaint processing, among other things. In the insurance industry, only firms and insurers are currently required to adopt and apply a complaint processing and dispute resolution policy. The Draft Regulation will make these obligations apply to independent partnerships and representatives. It also introduces new requirements and restrictions as well as monetary penalties for not including mandatory content in communications to a complainant, for example. Here are some of the Draft Regulation’s new provisions: Broadening of the definition of “complaint” to: Any dissatisfaction or reproach; That cannot be remedied immediately and for which a final response is expected; In respect of a service or product offered by a financial institution or financial intermediary; That is communicated by a person who is a member of the clientele of the institution or intermediary. The Draft Regulation does not contain a requirement that a complaint must be made in writing.2 It does make it mandatory for financial institutions and financial intermediaries to implement a complaint drafting assistance service.3 It also requires that a note be left in each record to indicate whether a complainant requested this service. Prohibition on the use of the term “ombudsman” in any representation or communication intended for the public to refer to the complaint process or to the persons assigned to its implementation.4 Specific requirements as concerns the mandatory content of a complaint processing policy, an acknowledgment of receipt and final response to a complainant, a complaint record and a complaints register.   For each complaint received, the complaint record must include the following information: The complaint Whether the complainant requested the complaint drafting assistance service The complainant’s initial communication A copy of the acknowledgment of receipt sent to the complainant Any document or information used in analyzing the complaint, including any communication with the complainant A copy of the final response provided to the complainant New time limits: Within 10 days of receiving a complaint, the insurer must notify the complainant in writing that they must also file the complaint with any other financial institution, financial intermediary or credit assessment agent involved, and the insurer must provide the complainant with their contact information.5 The complainant must be given 20 days to assess and respond to an offer to resolve the complaint, with sufficient time for the complainant to seek advice for the purpose of making an informed decision.6 If the complainant accepts the offer, the insurer has 30 days to respond.7 Financial institutions and financial intermediaries have a strict 60-day time limit to provide the complainant with a final response.8 There is a new 15-day time limit to send the complaint record to the AMF.9 There is a streamlined process for complaints that are resolved within 10 days of being recorded in the complaints register: The final response serves as an acknowledgment of receipt and must contain the following information: The complaint record identification code The date on which the complaint was received by the insurer or insurance representative The name and contact information of the employee responsible for processing the complaint referred to in section 7 of the Draft Regulation or in the Sound Commercial Practices Guideline A summary of the complaint received The conclusion of the analysis, including reasons, and the outcome of the complaint A reference to the complainant’s right to have the complaint record examined by the AMF The signature of the complaints officer A statement to the effect that the complainant has accepted the offer to resolve the complaint New monetary administrative penalties The Draft Regulation also provides for monetary administrative penalties ranging from $1,000 to $5,000 for failure to comply with certain requirements and prohibitions of the Draft Regulation. For example, the following will be subject to a monetary administrative penalty of $5,000: Attaching a condition to an offer to prevent the complainant from fully exercising their rights. Using the term “ombudsman” or any other similar title in any representation or communication intended for the public to refer to the complaint process or the persons assigned to its implementation to suggest that such persons are not acting on behalf of the financial institution or financial intermediary. In the latter case, a monetary administrative penalty may be imposed even where no complaint is involved, because the prohibition covers “any representation or communication intended for the public.” Insurers and financial intermediaries should review their communications as soon as possible, and especially the summary of their complaint processing policy appearing on their website. It concerns all entities regulated by the AMF, but the bulletin more specifically addresses financial institutions and financial intermediaries in the insurance industry. As currently indicated on the AMF’s website. Draft Regulation, s. 11. Id., s. 26, para. 2. Id., s. 15. Id., s. 13. Id. Id., s. 12, para. 4. Id., s. 25.

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  • Amendments to the categories of contracts covered by the exemptions to the obligation of an insurer to assume an insured’s defence—the Regulation to come into force

    On April 20, 2022, the government issued Order in Council 656-2022, which makes significant amendments to the Regulation respecting categories of insurance contracts and classes of insureds that may derogate from the rules of articles 2500 and 2503 (the “Regulation”). The original version of the draft regulation with the same title (the “Draft Regulation”) was the subject of one of our publications last September. The Regulation as amended will come into force on the 15th day following the date of its publication in the Gazette officielle du Québec; that is, on May 5, 2022.  Background In its articles 2500 and 2503, the Civil Code of Québec (the “C.C.Q.”) provides that the costs resulting from actions against an insured over and above the proceeds of insurance provided for in civil liability insurance contracts, including those of the defence, are borne by the insurer. In June 2021, the government amended article 2503 of the C.C.Q. to make it possible for some “categories of insurance contracts” and “classes of insureds” to be determined by regulation to depart from these rules.  It is in this context that the Draft Regulation came about. It was was significantly modified following the numerous comments and observations received from various industry stakeholders. Amendments First, sections 1 and 2 were amended to specify when the insured must meet the conditions referred to in these sections, i.e., “at the time of subscription”. The duration of the contracts covered by the first two sections of the Regulation is limited to one year pursuant to the new section 3. It also specified that in the case of contract renewal, the insured must meet the conditions set out in these sections. The provisions of the former section 5 remain, with the necessary adaptations, and are now found in section 4. Finally, sections 6, 7 and 8 were simply removed. Categories of insured covered Below are the categories of insureds who may subscribe to policies that depart from the rules set out in articles 2500 and 2503 of the C.C.Q.: Section 1 Drug manufacturers under the Act respecting prescription drug insurance;[1] Certain corporations incorporated under a private bill;[2] and Directors, officers and trustees of such businesses, except for their activities as members of a pension committee.   Section 2 Companies that are not referred to in section 1, but that meet one of the following conditions “where the total coverage under all the civil liability insurance contracts subscribed by that insured is at least $5,000,000”: Large businesses for the purposes of the Act respecting the Québec sales tax,[3] that is, businesses that have total taxable sales in a given fiscal year in excess of $10 million; A reporting issuer or subsidiary of such a reporting issuer within the meaning of the Securities Act;[4] A foreign business corporation within the meaning of the Taxation Act[5] or the Income Tax Act,[6] that is, a company that is not resident in Canada; and Directors, officers and trustees of such businesses, except for their activities as members of a pension committee. What to expect The amendments to the Draft Regulation reflect a willingness to simplify its application. In this regard, the removal of section 8 will no doubt be well received. Nevertheless, Quebec continues to be an exception to the principle of full freedom of contract. As a result, small and medium-sized enterprises in certain industries may continue to be affected by the tightening of the insurance market in Quebec, including the manufacturing sector that exports to the United States. It remains to be seen whether the Regulation will change over time. If you have any questions on the subject matter of this article or any other questions, feel free to contact a member of Lavery’s insurance team. [1] A-29.01. [2] Act constituting Capital régional et coopératif Desjardins (C-6.1), Act to establish Fondaction, le Fonds de développement de la Confédération des Syndicats Nationaux pour la coopération et l’emploi (F-3.1.2) and Act to establish the Fonds de solidarité des travailleurs du Québec (F.T.Q.) (F-3.2.1). [3] T-0.1. [4] V-1.1. [5] I-3. [6] R.S.C. 1985, c. 1 (5th Supp.).

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  • The Supreme Court of Canada’s Decision in Prelco: The Application of Limitation of Liability Clauses in Case of a Breach of a Fundamental Obligation of a Contract

    Introduction Non-liability clauses are often included in many types of contracts. In principle, they are valid and used to limit (limitation of liability clause) or eliminate (exoneration clause) the liability of a party with respect to its obligations contained in a contract. The recent unanimous decision of the Supreme Court of Canada confirms that under Quebec law, parties may limit or exclude their liability in a contract by mutual agreement. However, a party may have such a clause declared inoperative by invoking the doctrine of breach of a fundamental obligation of the contract. In this case, the Supreme Court of Canada confirmed the validity of the clause at issue and circumscribed the limits of the application of the doctrine. The Supreme Court of Canada’s decision The facts The dispute relates to a contract signed between 6362222 Canada inc. (“Createch”), a consulting firm specializing in the improvement and implementation of integrated management systems, and Prelco inc. (“Prelco”), a manufacturing company specializing in the fabrication and transformation of flat glass. Under the terms of the contract that the parties concluded in 2008, Createch was to provide software and professional services to help Prelco implement an integrated management system. Createch prepared a draft contract and Prelco did not ask for any changes to the proposed conditions. A clause entitled Llimited Liability was included in the contract, which stipulated that Createch’s liability to Prelco for damages attributed to any cause whatsoever would be limited to amounts paid to Createch, and that Createch could not be held liable for any damages resulting from the loss of data, profits or revenues or from the use of products or for any other special, consequential or indirect damages. When the system was implemented, numerous problems arose and Prelco decided to terminate its contractual relationship with Createch. Prelco brought an action for damages against Createch for the reimbursement of an overpayment, costs incurred to restore the system, claims from its customers and loss of profits. Createch filed a cross-application for the unpaid balance for the project. At trial, the Superior Court of Québec concluded that the limitation of liability clause was inoperative under the doctrine of breach of fundamental obligation, because Createch had breached its fundamental obligation by failing to take Prelco’s operating needs into account when implementing the integrated management system. The Court of Appeal of Québec confirmed the trial judge’s decision and held that the doctrine of breach of fundamental obligation can annul the effect of an exoneration or limitation of liability clause by the mere fact that a breach relates to a fundamental obligation. The Supreme Court of Canada’s reasons The Supreme Court of Canada allowed the appeal and set aside the decisions of the lower courts. Per Chief Justice Wagner and Justice Kasirer, the Supreme Court held that the limitation of liability clause in the parties’ contract was valid, despite the fact that Createch had breached its fundamental obligation. The Supreme Court addressed the two legal bases for the existence of the doctrine of breach of fundamental obligation: the validity of the clause having regard to public order and he validity of the clause having regard to the requirement relating to the cause of the obligation. In this case, the Court determined that public order could not render the limitation of liability clause inoperative as the contract at issue was one by mutual agreement and the parties were free to share the risks associated with a contractual breach between them, even if the breach involved a fundamental obligation. As for the validity of the limitation of liability clause, the Court determined that it was not a no obligation clause that would exclude the reciprocity of obligations. Createch had significant obligations to Prelco, and Prelco could keep the integrated management system, obtain damages for unsatisfactory services and be compensated for necessary costs for specific performance by replacement, but no higher than what had been paid to Createch. A limitation of liability clause does not therefore deprive the contractual obligation of its objective cause and does not exclude all sanctions. The Court explains: “[86] Thus, art. 1371 C.C.Q. applies to contract clauses that negate or exclude all of the debtor’s obligations and, in so doing, deprive the correlative obligation of its cause. Where a contract includes such clauses, it can be said that the reciprocal nature of the contractual relationship is called into question (arts. 1371, 1378 para. 1, 1380 para. 1, 1381 para. 1 and 1458 C.C.Q.). To apply a more exacting criterion would amount to annulling or revising a contract on assessing the equivalence rather than the existence of the debtor’s prestation and, as a result, to indirectly introducing the concept of lesion, which is narrowly delimited in the Code.”1 Prelco remains bound by the limitation of liability clause in this case. The Supreme Court of Canada is of the view that the trial judge and the Court of Appeal erred in law in declaring the limitation of liability clause inoperative. It allowed Createch’s appeal. Conclusion This Supreme Court of Canada decision confirms the importance of the principles of autonomy of contracting parties and freedom of contract between sophisticated legal persons in Quebec law. The doctrine of breach of fundamental obligation does not permit the circumvention of the principle of freedom of contract: It cannot be said that an obligation is deprived of its cause when a sanction for nonperformance of obligations fundamental to the contract is provided for in a limitation of liability clause. [1] 6362222 Canada inc. v. Prelco inc., 2021 SCC 39, para. 86..

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  • Limitation of insurer’s duty to defend: The Draft Regulation specifying the categories of contracts covered is published

    On September 8, 2021, Mr. Éric Girard, Minister of Finance, presented his Draft Regulation specifying the classes of liability insurance contracts that may derogate from public policy rules previously applicable to liability insurance (the “Draft Regulation”), namely those set out in articles 2500 and 2503 of the Civil Code of Québec (“CCQ”) concerning the insurer’s duty to defend and the exclusive application of insurance coverage to injured third parties. Background Since May 27, 2021, article 2503 CCQ reads as follows: The insurer is bound to take up the interest of any person entitled to the benefit of the insurance and assume his defence in any action brought against him. Legal costs and expenses resulting from actions against the insured, including those of the defence, and interest on the proceeds of the insurance are borne by the insurer over and above the proceeds of the insurance. However, the Government may, by regulation, determine categories of insurance contracts that may depart from those rules and from the rule set out in article 2500, as well as classes of insureds that may be covered by such contracts. The Government may also prescribe any standard applicable to those contracts. When Bill 82 was introduced for adoption, the Minister of Finance seemed to suggest that the categories that would benefit would be public companies and liability insurance for directors and officers. Although small and medium-sized enterprises are not covered by the Draft Regulation, it does provide for several categories of insureds that may benefit from exemptions. Draft Regulation – covered categories The Draft Regulation appears to cover “any liability insurance contract,” but sets out conditions that must be met by an insured in order to benefit from exemptions. Finally, many businesses and their directors and officers will be entitled to subscribe to policies that do not comply with articles 2500 and 2503 CCQ. Here is a summary of exemptions:  Section 1 Category of insured Drug manufacturers under the Act respecting prescription drug insurance; Certain corporations incorporated under a private bill;1 and Directors, officers and trustees of such businesses, except for their activities as members of a pension committee. Exemptions These insureds may subscribe to policies that depart from the rules set out in article 2500 CCQ and those set out in the first and second paragraphs of article 2503 CCQ.2 Section 2 Category of insured Companies not referred to in section 1, but meeting one of the following conditions “where the total coverage under all the civil liability insurance contracts subscribed by that insured is at least $5,000,000”: Large businesses for the purpose of the Act respecting the Québec sales tax; that is, businesses that have total taxable sales in a given fiscal year in excess of $10 million; A reporting issuer or subsidiary of such reporting issuer within the meaning of the Securities Act; A foreign business corporation within the meaning of the Taxation Act (chapter I-3) or the Income Tax Act; that is, a company that is not resident in Canada; and A corporation that pursues an activity outside Canada and derives income from that activity. Directors, officers and trustees of such businesses, except for their activities as members of a pension committee. Exemptions These insureds may subscribe to policies that depart from the rules set out in article 2500 CCQ and those set out in the first and second paragraphs of article 2503 CCQ. Section 3 Category of insured Businesses not referred to in sections 1 and 2 that conduct activities to provide services provided for in the Act respecting health services and social services as: An intermediate resource not referred to in the Act respecting the representation of family-type resources and certain intermediate resources and the negotiation process for their group agreements (chapter R-24.0.2) and who is a support for elderly autonomy-type resource; A private seniors’ residence; or A private health and social services institution operating a residential and long-term care centre or rehabilitation centre. Directors, officers and trustees of such businesses, except for their activities as members of a pension committee. Exemptions These insureds may subscribe to policies that depart from the rules set out in article 2500 CCQ and those set out in the second paragraph of article 2503 CCQ only. Section 4 Category of insured Businesses that are not covered by section 2, for example because they do not have total coverage of at least $5,000,000, and that have operations outside of Canada and earn income from them. However, exemptions are possible only for coverage of these foreign activities. Policies covering the Canadian operations of businesses must comply with the rules set out in the public interest.   Exemptions These insureds may purchase policies that depart from the rules set out in article 2500 CCQ and those set out in the first and second paragraphs of article 2503 CCQ. Section 6 Category of insured Businesses not referred to in any of sections 1 to 3 having primary liability insurance contracts in accordance with the provisions of articles 2500 and 2503 CCQ, covering legal costs and expenses resulting from actions against them, including those of the defence, and interest on the proceeds of the insurance. Exemptions These insureds may subscribe to complementary policies that depart from the rules set out in article 2500 CCQ and those set out in the first and second paragraphs of article 2503 CCQ. The Draft Regulation also stipulates that where an insurance policy does not provide for an obligation for an insurer to assume an insured’s defence (first paragraph of article 2503 CCQ), the insured retains the right to select counsel, but must keep the insurer informed of the progress of the proceedings and allow it to participate in the defence. Finally, the government, in article 8 of the Draft Regulation, provides that the proceeds of the insurance that are not applied exclusively to the payment of injured third parties may not exceed 50% of the proceeds of the insurance, unless the insured is found not to be liable or unless the payments to injured third parties do not reach such 50%. However, where a minimum amount of liability insurance coverage is required by law, that amount must be applied in full to the payment of injured third parties without regard to the exceptions discussed above. What to expect While some will welcome the government’s openness in allowing policyholders and insurers to relax certain obligations that may have contributed to a tightening insurance market in Quebec, others will fear the consequences that these changes may have, in particular on the availability of “non-exempt” insurance policies for insureds covered by the Draft Regulation.  In any case, this is a significant change that will generate much discussion between risk managers, market intermediaries and underwriters.  Also, some may be interested in obtaining additional information or commenting on the Draft Regulation. Information requests may be directed to the Direction générale du droit corporatif et des politiques relatives au secteur financier, Ministère des Finances, and comments may be made in writing to the attention of the Minister of Finance before October 23, 2021. Do not hesitate to contact a member of Lavery’s insurance team in connection with the above. Act constituting Capital régional et coopératif Desjardins (C-6.1), Act to establish Fondaction, le Fonds de développement de la Confédération des Syndicats Nationaux pour la Coopération et l'emploi (F-3.1.2) and Act to establish the Fonds de solidarité des travailleurs du Québec (F-3.2.1). As reproduced above, the first paragraph of article 2500 CCQ concerns the insurer’s obligation to assume the defence of the insured with respect to covered claims, and the second paragraph specifies that the insurer assumes the legal costs, interest and expenses, over and above the proceeds of the insurance.

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  • Bill 78 and the notion of ultimate beneficiary

    Bill 78 was introduced in December 2020 by Minister Jean Boulet and given assent on June 8, 2021. It amends the Act respecting the legal publicity of enterprises (the “Act”) and its regulation, the Regulation respecting the application of the Act respecting the legal publicity of enterprises (the “Regulation”). This legislative amendment is part of a process to prevent and fight tax evasion, money laundering and corruption, and will now require registrants to disclose more of their information. Disclosure of information relating to ultimate beneficiaries The amendments set out new requirements for corporate transparency and now require registrants to disclose information about the natural persons who are their ultimate beneficiaries, including their names, domiciles and dates of birth, in order to prevent the use of nominees for tax evasion, among other things. It should be noted that the obligation to disclose the ultimate beneficiary’s domicile can be circumvented by disclosing a professional address instead. New section 35.2 of the Bill provides that “a registrant who must declare the domicile of a natural person under a provision of this Bill may also declare a professional address for the natural person.” If such an address is declared, the information relating to the domicile of that person may not be consulted. Under the Bill, a “registrant” means a person or group of persons registered voluntarily or any person, trust or partnership required to be registered. The Bill specifies that “ultimate beneficiary” means a natural person who meets any of the following conditions in respect of a registrant1: Is the holder, even indirectly, or beneficiary of a number of shares or units of the registrant, conferring on the person the power to exercise 25% or more of the voting rights attached to the shares or units; Is the holder, even indirectly, or beneficiary of a number of shares or units the value of which corresponds to 25% or more of the fair market value of all the shares or units issued by the registrant; Exercises control in fact of the registrant; or Is a general partner of a limited partnership. The Bill also provides that where natural persons holding shares or units of the registrant have agreed to jointly exercise the voting rights attached to the shares or units and the agreement confers on them, together, the power to exercise 25% or more of those voting rights, each of those natural persons is considered to be an ultimate beneficiary of the registrant. Lastly, it provides that a natural person operating a sole proprietorship is presumed to be the only ultimate beneficiary of the sole proprietorship, unless he or she declares otherwise. Notwithstanding this definition of ultimate beneficiary, it is important to note that the government may make regulations determining other conditions according to which a natural person is considered to be an ultimate beneficiary. Search by name of an ultimate beneficiary The Bill provides that a natural person’s name may be part of a compilation of information or serve as the basis for a compilation, and may be used as a search term for the purposes of a search in the enterprise register. This will allow the public to identify all corporations with which a natural person is associated, where such a person has been named the ultimate beneficiary of a registrant. However, information that may not be consulted may not be part of such a compilation or serve as the basis for one. It should be noted that the Bill also allows the government to make regulations determining the information contained in the enterprise register that may not be consulted. Conclusion This legislative amendment, particularly with the addition of the notion of ultimate beneficiary, will considerably increase disclosure requirements for corporations that are already required to communicate certain types of information to the Registraire des entreprises du Québec. We can only hope that at the end of this legislative process, the government will implement a clear and effective information disclosure system, making it easier for registrants and their advisors to manage the information that they disclose. The new section 0.3 will now be part of the new Chapter 0.1 “Purposes and definitions.”

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  • Insurer’s Duty to Defend: The Court Rules in a Case of Contractual Breach

    The question of insurers’ duty to defend is back in the spotlight. On March 18, 2021, the Superior Court once again considered the issue in its application of the law to facts relevant to the dispute.1 Facts In April 2016, Cégerco Inc. (“Cégerco”), a general contractor, retained the services of Construction Placo Inc. (“Placo”) for the supply and installation of exterior cladding made of metal wall panels, which were manufactured by Kingspan Insulated Panels Ltd. (“Kingspan”). On May 24, 2017, Cégerco resiliated its contract with Placo on the grounds that Placo had caused numerous delays to the work schedule. Placo therefore instituted proceedings against Kingspan to recover sums advanced to the company, and against Cégerco for the damages resulting from the resiliation of the contract. Kingspan and Cégerco filed cross-applications, alleging non-performance by Placo. Faced with these cross-applications, Placo turned to its insurer for it to take up its defence.   However, the insurer adopted the position that it had no obligation to defend Placo or accept its insurance claim. Placo then applied to the Superior Court by way of an Wellington type application to have the insurer take up its defence in the dispute opposing it to Cégerco and Kingspan. Reasons After briefly reviewing the principles of Wellington type applications and the Supreme Court’s teachings in the landmark Progressive Homes2 decision, the Court concluded that the damages claimed in Kingspan’s cross-application did not arise from material damage or a loss. It did not dwell on this question any further, judging that insurance coverage did not apply. The Court then addressed Cégerco’s cross-application. Here again, it held that the damages claimed were not the result of material damage within the meaning of the insurance policy. Thus, after having analyzed Cégerco’s breakdown of damages claimed, it concluded that the sums represented monetary damage resulting from the fact that Placo had failed to fulfill its obligation to deliver compliant panels.  The Court further noted that [translation] “monetary losses related to defective or non-compliant products” did not fall within the scope of the commercial liability insurance’s coverage. The Court drew a distinction between the facts of this case and those of Progressive Homes cited above,3pointing out that the issue here was simply the non-performance of a contract. The Court held that the panels could not be the cause of the material damage that Cégerco suffered, as they had not been installed on the building, and that the material damage [translation] “rather resulted from a normal, if not foreseeable, incident that could have occurred in the normal course of any business.” Thus, according to the Court, although Cégerco was bound to take steps to remedy the delay in the delivery of the panels, and that such steps may have resulted in damage to the structure, Placo’s breach of contract did not result in a loss that would make insurance coverage applicable. For these reasons, the Court dismissed the plaintiff’s Wellington type application and that of the cross-applicant Placo. Conclusion What this decision means is that although an insurer’s duty to defend arises as soon as there is a possibility that material damage claimed falls within the scope of an insurance policy’s coverage, monetary damage suffered purely as a result of a breach of contract is not a sufficient legal basis for triggering an insurer’s duty to defend. Construction Placo inc. c. Kingspan Insulated Panels Ltd., 2021 QCCS 1230 Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33. [2010] 2 SCR 245. Id.

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  • Insurer's Duty to Defend: Bill 82 Opens the Door to Possible Limitations

    On December 11, 2020, the Minister of Finance, Éric Girard, introduced and tabled Bill 82 entitled An Act respecting mainly the implementation of certain provisions of the Budget Speech of 10 March 2020 (hereinafter the “Bill”) before the National Assembly.  The Bill opens the door to possible limitations on the duty to defend with respect to certain categories of liability insurance contracts to be determined by regulation. Background The Civil Code of Quebec (“C.C.Q.”) provides in articles 2500 and 2503 C.C.Q. that the insurance limits provided for in liability insurance contracts and the costs resulting from actions against the insured, including those associated with the defence, are borne by the insurer in excess of these limits. Since these provisions are of public order, the parties to the contract cannot agree to the contrary and the insurer's obligation to pay these defence costs is practically unlimited. The increase in the frequency and size of claims, as well as the explosion in costs associated with the defence of insureds, have contributed to a hardening of the market since 2019.  In such a market, insurance companies are applying stricter pricing and demanding higher premiums. In some cases, some insurers are withdrawing completely from the market or from certain industries, creating real difficulties for many companies. The absence of a possible limitation on the insurers' duty to defend, a principle specific to Quebec, was likely to make this market less attractive to national and international insurers. Proposed legislative change The Bill provides that the insurers' duty to defend under articles 2500 and 2503 C.C.Q. may be limited with respect to certain liability insurance contracts that will be determined by regulation. If the proposed amendment is accepted in its present form, the new article 2503 C.C.Q. will henceforth read as follows: 2503. The insurer is bound to take up the interest of any person entitled to the benefit of the insurance and assume his defence in any action brought against him. Legal costs and expenses resulting from actions against the insured, including those of the defence, and interest on the proceeds of the insurance are borne by the insurer over and above the proceeds of the insurance. However, the Government may, by regulation, determine categories of insurance contracts that may depart from those rules and from the rule set out in article 2500, as well as classes of insureds that may be covered by such contracts. The Government may also prescribe any standard applicable to those contracts  [Emphasis added] This amendment has no practical impact in the short term since a regulation will have to be adopted to specify the contracts that may be subject to this limitation. We anticipate that the legislator will first target more special classes of liability insurance contracts, often purchased by more sophisticated insureds, such as Directors and Officers liability insurance contracts. Nevertheless, this is a significant step forward that will undoubtedly stimulate the interest of certain specialized insurers for Quebec risks. Upcoming steps The Bill, although tabled, must go through several stages before the proposed amendment becomes law. Even if the Bill could be assented to in the coming months, a regulation giving effect to the new paragraph of article 2503 C.C.Q. will also have to be drafted and passed. We will therefore continue to monitor the progress of this legislative matter.

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  • The Unforeseen Benefits of Driverless Transport during a Pandemic

    The COVID-19 pandemic has been not only causing major social upheaval but disrupting business development and the economy as well. Nevertheless, since last March, we have seen many developments and new projects involving self-driving vehicles (SDV). Here is an overview. Distancing made easy thanks to contactless delivery In mid-April 2020, General Motors’ Cruise SDVs were dispatched to assist two food banks in the delivery of nearly 4,000 meals in eight days in the San Francisco Bay Area. Deliveries were made with two volunteer drivers overseeing the operation of the Level 3 SDVs. Rob Grant, Vice President of Global Government Affairs at Cruise, commented on the usefulness of SDVs: “What I do see is this pandemic really showing where self-driving vehicles can be of use in the future.  That includes in contactless delivery like we’re doing here.”1 Also in California in April, SDVs operated by the start-up Nuro Inc. were made available to transport medical equipment in San Mateo County and Sacramento.  Toyota Pony SDVs were, for their part, used to deliver meals to local shelters in the city of Fremont, California.  Innovation: The first Level 4 driverless vehicle service In July 2020, Navya Group successfully implemented a Level 4 self-driving vehicles service on a closed site. Launched in partnership with Groupe Keolis, the service has been transporting visitors and athletes on the site of the National Shooting Sports Centre in Châteauroux, France, from the parking lot to the reception area.  This is a great step forward—it is the first trial of a level 4 vehicle, meaning that it is fully automated and does not require a human driver in the vehicle itself to control it should a critical situation occur. Driverless buses and dedicated lanes in the coming years In August 2020, the state of Michigan announced that it would take active steps to create dedicated road lanes exclusively for SDVs on a 65 km stretch of highway between Detroit and Ann Arbour.  This initiative will begin with a study to be conducted over the next three years. One of the goals of this ambitious project is to have driverless buses operating in the corridor connecting the University of Michigan and the Detroit Metropolitan Airport in downtown Detroit. In September 2020, the first SDV circuit in Japan was inaugurated at Tokyo’s Haneda Airport. The regular route travels 700 metres through the airport.  A tragedy to remind us that exercising caution is key  On March 18, 2018, in Tempe, Arizona, a pedestrian was killed in a collision with a Volvo SUV operated by an Uber Technologies automated driving system that was being tested. The vehicle involved in the accident, which was being fine-tuned, corresponded to a Level 3 SDV under SAE International Standard J3016, requiring a human driver to remain alert at all times in order to take control of the vehicle in a critical situation. The investigation by the National Transportation Safety Board determined that the vehicle’s automated driving system had detected the pedestrian, but was unable to classify her as such and thus predict her path. In addition, video footage of the driver inside the SDV showed that she did not have her eyes on the road at the time of the accident, but rather was looking at her cell phone on the vehicle’s console. In September 2020, the authorities indicted the driver of the vehicle and charged her with negligent homicide. The driver pleaded not guilty and the pre-trial conference will be held in late October 2020.  We will keep you informed of developments in this case.   In all sectors of the economy, including the transportation industry and more specifically the self-driving vehicles industry, projects have been put on hold because of the ongoing COVID-19 pandemic. Nevertheless, many projects that have been introduced, such as contactless delivery projects, are now more important than ever. Apart from the Navya Group project, which involves Level 4 vehicles, all the initiatives mentioned concern Level 3 vehicles. These vehicles, which are allowed on Quebec roads, must always have a human driver present. The recent charges against the inattentive driver in Arizona serve as a reminder to all drivers of Level 3 SDVs that regardless of the context of an accident, they may be held liable. The implementation of SDVs around the world is slow, but steadily gaining ground. A number of projects will soon be rolled out, including in Quebec. As such initiatives grow in number, SDVs will become more socially acceptable, and seeing these vehicles as something normal on our roads is right around the corner.   Financial Post, April 29, 2020, “Self-driving vehicles get in on the delivery scene amid COVID-19,”.

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  • Three key points about the Regulation respecting damage insurance brockerage

    On December 13, 2019, the Regulation respecting damage insurance brokerage (the “Regulation”), adopted under the Act respecting the distribution of financial products and services (“ARDFPS”), came into force. The Regulation includes the following changes: New titles for firms and qualification requirements; New obligations for damage insurance brokers; and New disclosure requirements New titles for firms and qualification requirements The Regulation amends the Regulation respecting the registration of firms, representatives and independent partnerships by creating two new titles, namely “damage insurance brokerage firm” (hereinafter “Brokerage Firm”) and “damage insurance agency” (hereinafter “Agency”). To qualify as a Brokerage Firm, a firm must meet the following conditions: It must not be an insurer; and Its capital must comply with section 150 of the ARDFPS, which stipulates that no financial institution, financial group or related legal person may hold an interest allowing it to exercise more than 20% of the voting rights attached to the shares issued by the firm in question or an interest representing more than 50% of the value of the firm’s equity capital. To qualify as an Agency, a firm must meet the following conditions: It must be bound by an exclusive contract with a single insurer; and The natural persons through whom it pursues activities, if any, must be damage insurance agents. It should be noted that neither an independent representative nor an independent partnership may act as an Agency. As for a firm that does not meet the conditions to qualify as a Brokerage Firm, it must register as an Agency and abide by the conditions that apply to Agencies. Firms registered in damage insurance have until March1, 2020, to submit a qualification form to the Autorité des marchés financiers (“AMF”). The AMF has confirmed that it will send one of the following notices to all registrants by mid-March 2020: A notice confirming registration as an Agency or Brokerage Firm; or A notice of change giving the firm in question ninety (90) days to comply as an Agency. When the 90-day period expires, if applicable, the firm will be registered as an Agency, and the title of its representatives will be changed to “agent,” unless they are attached to another Brokerage Firm. Such representatives will not be allowed to hold the titles of “agent” and “broker” at the same time. New obligations for damage insurance brokers Section 38 of the ARDFPS provides that a damage insurance broker offering insurance products directly to the public must be able to demonstrate the ability to obtain quotes from at least three (3) insurers that are not part of the same financial group. Section 1 of the Regulation specifies that this obligation applies to brokers offering automobile or home insurance products (property and civil liability insurance on a principal residence that an insured owns or rents). This means that commercial insurance brokers are not subject to this obligation. New disclosure requirements A damage insurance broker who directly offers automobile or home insurance products, as described above, to the public, is now subject to a disclosure obligation. According to section 2 of the Regulation, before inquiring into a client’s needs in accordance with the obligation set out in section 27 of the ARDFPS, a broker must disclose to the client the name of the insurer to which the broker, as an independent representative, or the firm or independent partnership on behalf of which the broker is acting pays 60% or more of the personal-lines damage insurance premiums. This requirement exempts a broker from disclosing the names of insurers with which the broker or the firm or independent partnership on behalf of which the broker is acting has a business relationship, and from the obligation to confirm said disclosure in writing (obligations set out in sections 4.8, 4.10(2) and 4.13 of the Regulation respecting information to be provided to consumers). Summary The amendments regarding firm qualification and disclosure requirements are intended to ensure transparency with respect to business relationships between registrants and insurers. The draft version and current version of the Regulation differ significantly in relation to the way in which these two components are set out. Following consultation sessions and various publications, the disclosure obligation was eased and the concept of hybrid agency was removed. Although the change in qualification only directly affects firms, the form issued by the AMF must be completed by all registrants, including independent partnerships and independent representatives, to confirm that they comply with the requirements that apply to them. All damage insurance registrants should thus take note of and set aside time for the AMF online qualification form, which must be completed by March 1, 2020, at the latest.

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  • Bill 141: Checklist on insurance products offered via the internet and distribution without a representative

    Download your checklist A major reform of the financial sector and, more specifically, of the standards surrounding the practice of professionals governed by the Autorité des marchés financiers (the “AMF”) is now applicable under the Act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions1, formerly known as Bill 141. One of the main goals of this reform is to offer greater protection to consumers by providing a framework for online insurance product offers and for distribution without a representative. This framework is provided for in the Regulation respecting Alternative Distribution Methods (the “RADM”)2. Considering that 60 laws are amended by Bill 141, many of which apply to insurance firms3 and insurers4, it is important to be well informed of your key obligations in order to navigate through this transition. Here is what you need to know: The obligations of insurance firms for insurance products offered via the internet5 If you offer insurance products online, as of June 13, 2019, you must comply with the following: Information to be provided to the AMF Before offering a product online: The information about your “digital space” The information about the products you offer The insurers whose products are offered Annually: The number of insurance policies issued The amount of premiums written through your digital space The number of cases where clients cancelled their insurance contracts Information to be provided to the client: At all times: Make the means to interact with a representative of the firm visible The information must be presented in a clear, readable, specific and non misleading way Make readily accessible through your digital space: The name, contact details, sectors and AMF registration number of the firm The information on where the client can file a complaint and the summary of the complaint processing policy A specimen of the policy for each product offered and any available endorsement, if applicable6 Before a contract is entered into: The name and contact information of the insurer offering the product The product coverage, exclusions and limitations The warnings about the consequences of misrepresentation or concealment The premiums, and other fees and expenses, including applicable taxes The period of validity of the quote Immediately before a contract is entered into: The information collected from the client and the options and conditions the client has chosen As soon as a contract is entered into: Confirmation that the contract has been entered into and the temporary insurance, if applicable The right of rescission and the procedures for exercising it The way in which the policy will be provided to the client Obligations specific to the operation of the digital space: Ensure the proper operation and reliability of your digital space at all times Require an action from the client each time confirmation or consent is needed Detect and automatically suspend or terminate an action initiated on the digital space if the information provided may lead to an inappropriate result or the client does not meet the product eligibility criteria Enable the client to correct a mistake at any time prior to entering into a contract Where the firm offers an insurance of persons contract that is likely to replace another contract and is unable to proceed with the replacement through its digital space, the firm must interrupt such offer, and provide the information as it would have been done in the presence of a representative7 Suspend the action initiated through the digital space when no representative can interact immediately with a client who asks to interact with a representative Ensure that the information provided by the client is kept in a manner that ensures its confidentiality and security Prohibitions It is forbidden, through your digital space: To present advertising unrelated to the product offered To automatically make a choice for the client regarding the products offered To exclude or limit your liability to the client relating to the proper operation or reliability of your digital space or the accuracy of the information presented thereon Obligations of insurers for insurance products offered through a distributor8 A distributor is a person who, in pursuing activities in a field other than insurance, offers, as an accessory, for an insurer, an insurance product which relates solely to goods sold by the person or secures a client’s adhesion in respect of such an insurance product.9 Information to be provided to the AMF Before offering an insurance product through a distributor: A list of distributors10 A list of the contracts offered by a distributor, including a description of the insurance coverage provided by those contracts11 The hyperlink to access the distributor’s offer through the Internet The contact information of the insurer’s assistance service Annually, for each product offered through a distributor: The number of insurance policies and certificates issued and the amount of premiums written The number of claims and the amount of indemnities paid The number of rescissions and cancellations The remuneration paid to all distributors and third parties to which the insurer has entrusted the performance of the obligations of an insurer with respect to the distribution of a product through a distributor Documents and information to be provided to the client The notice of free choice The notice of specific consent The notice of rescission of an insurance contract The fact sheet The product summary12 As soon as a contract is entered into: A summary of the information collected from the client The policy, the insurance certificate or the temporary insurance Prohibitions With respect to replacement insurance for insured vehicles or insured parts and with respect to the life, health and employment insurance of a debtor or investor, no insurer may13: Enable the distributor to keep its remuneration within a time period not commensurate with the term of the product, which time period may not, however, be less than 180 days Pay to the distributor a bonus or a share in the profits based on contract experience Set different commission rates applicable to a distributor for products with similar insurance coverage Other changes effective June 13, 2020 For Internet offers you must: Make a specimen of the policy for each product offered and any available endorsement available on your digital space Adopt a procedure for the design, use and maintenance of your digital space and ensure its implementation For each insurance product offered by a distributor, the insurer must make available on its website: A specimen of the insurance policy or insurance certificate and any available endorsements The product summary14 For the offer of insurance products by a distributor, the insurer will have to: Adopt and implement procedures that enable the supervision and training of its distributors Provide training to its distributors covering the topics listed in the RADM Penalties Certain breaches of your obligations may have administrative and criminal consequences that may be imposed at the initiative of the AMF. The AMF has broad powers to carry out preventive inspections and inquiries to demonstrate that infractions have been committed. Consistent with the consumer protection objectives of Bill 141, the ARRFS now provides for greater protection for those who report an offence and much stiffer fines for those who obstruct inspections and inquiries. It should also be noted that certain contraventions of the ARDFPS or the RADM can lead to the cancellation or revocation of the firm’s registration. Administrative monetary penalties of up to $2,000,000 may also be imposed by the Financial Markets Administrative Tribunal. It is therefore essential that you be aware of and comply with your new obligations under the Act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions.   S.Q. 2018, c. 23. CQLR, c. D-9.2, r. 16.1. The term "firm" is used for brevity, but the information in this bulletin also applies to independent partnerships. Most of these amendments can be found in the Insurers Act, CQLR, c. A-32.1 (the “IA”); this act replaces the Act respecting insurance, CQLR, c. I-21. A-32, the Act respecting the distribution of financial products and services, CQLR, c. D-9.2 (the “ARDFPS”), and the Act respecting the regulation of the financial sector, CQLR, c. E-6.1 (the “ARRFS”: the Act respecting the Autorité des marchés financiers, which has been renamed) Chapter II of the RADM mainly provides the framework applicable to insurance firms and insurers offering products online via a transactional website. This requirement is subject to a transitional period of one year ending June 12, 2020. In accordance with section 22 of the Regulation respecting the pursuit of activities as a representative (chapter D-9.2, r. 10.) Chapter III, of the RADM provides the framework applicable to insurers that offer their products through a distributor. ARDFPS, s. 408. The insurer must, without delay, inform the Authority of any change to this list. The insurer must, without delay, inform the Authority of any change to this list. The distribution guide filed with the AMF before June 13, 2019 can be used until June 12, 2020 and until then, delivery of the guide will be equivalent to the delivery of the summary and the fact sheet. In accordance with sections 424 and 426 of the ARDFPS, these insurance products are deemed to be insurance products which relate solely to goods. The distribution guide that can be used until June 12, 2020 must be currently accessible on the Insurer’s website.

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  • Are you protected against phishing email?
    What the Court of Appeal said in insurance matters

    Phishing fraud is a rampant problem that causes major losses throughout the world. It consists in bad actors sending emails in which they falsely claim to be a trusted third party or legitimate company in order to obtain confidential information from the recipient for the purpose of committing fraud1. In Co-operators c. Coop fédérée2, the Court confirmed the insurer's obligation to indemnify its insured for losses resulting from such fraud, thereby confirming that the insurer was precluded from raising a new defence at trial. The Court of Appeal also addressed the notion of specific insurance provided for in article 2496 of the Civil Code of Québec (hereinafter "C.C.Q.") in the presence of a plurality of insurance. Facts In August 2014, La Coop fédérée (the "Coop") was the victim of phishing fraud. Due to false pretenses, its comptroller sent a payment order to the Coop's bank (the "Bank"), which complied with the order and transferred the sum of $4,946,355.26 in U.S. dollars to a foreign company. On August 23, 2014, the Coop became aware of the fraud, but the Bank was unable to stop the transaction or recover the funds. At that time, the Coop's account was overdrawn by $3,386,361.80, to which was added the amount of the transfer. The Coop contested the validity of the fraudulent transfer and the resulting additional overdraft with the Bank. It also informed its insurers of the losses incurred. However, The Co-operators General Insurance Company ("The Co-operators") denied the claim on the basis that the increase in the overdraft was not a property covered by the policy, that the misappropriated money belonged to the Bank and, incidentally, that the Coop had not suffered a compensable loss. As for Liberty International Underwriters ("Liberty"), which had issued an insurance policy against fraud and embezzlement, it accepted the claim subject to the rules of contribution between multiple insurers. The Coop therefore went to the Superior Court to force The Co-operators to indemnify it for the loss suffered. At the same time, Liberty claimed from The Co-operators the reimbursement of part of the indemnity that it had paid to the Coop. Superior Court As for liability for the loss, the trial judge first concluded that the Bills of Exchange Act ("BEA") does not apply to electronic funds transfers ("EFT"), that is, transfers without the exchange of paper documents. He then concluded that the overdraft on the Coop's bank account constituted a loan, that the Coop had become the owner of the misappropriated sum in accordance with article 2327 of the C.C.Q., and that it thus had to bear the loss. This conclusion led the judge to, in particular, dismiss the application filed by the Co-operators to amend its defence so that it could argue that the Coop's refusal to raise the invalidity of the payment order could not be set up against it and constituted a reason for non-coverage. Instead, the judge agreed with the Coop and Liberty, which argued that The Co-operators could not invoke new grounds for denying coverage at such a late time. According to the Court, The Co-operators had sealed its fate upon the initial denial of coverage. As for The Co-operators' insurance coverage, the judge pointed out that a contract for "property and business interruption insurance" existed, and as it was considered as a negotiated policy, the intention of the parties had precedence. However, no evidence of this intention was filed. In the absence of a specific exclusion on fraud, the judge ruled that the loss suffered by the Coop constituted a risk covered by this insurance policy. The trial judge found that the loss suffered was covered by both insurance policies, namely that of the Co-operators and that of Liberty. According to the trial judge, the Liberty insurance policy was not a specific insurance policy in that it covered all of the insured's property and all the risks that could affect it, as did the Co-operators policy. Given that both insurance policies covered the same risks, the Court concluded that there was of a plurality of insurance and apportioned the contributions of each of the insurers in proportion to their respective share of the total coverage, while taking into account the applicable deductibles. Quebec Court of Appeal The judges of the Court of Appeal dismissed the appeal except for the conclusion on the nature of the Liberty insurance policy. Like the Superior Court judge, the Court of Appeal held that the BEA does not apply to a payment order because an EFT is not a bill of exchange within the meaning of the BEA. In addition, the Court of Appeal further distinguished the two by the fact that an EFT does not include a procedure for presenting payment, is immediate and final and, unlike a bill of exchange, beneficiaries of an EFT have no title or written document that enables them to claim payment should the transaction fail. Regarding The Co-operators' application to amend its defence, the Court reiterated that the decision to grant an application for an amendment belongs to the trial judge. That judge must base this decision on three principles: An amendment is permitted if it does not delay the proceedings or is not contrary to the interests of justice; If it does not constitute an entirely new application; The lateness of the application cannot be the only justification for dismissing the application. The Court of Appeal also found that The Co-operators had sealed its fate by failing to mention these grounds upon the initial denial of coverage. In addition, the Court of Appeal confirmed that the misappropriated sum was indeed the Coop’s property. As a result, the trial judge did not err in determining that the policy covered all property of any kind and all risks, including a loss resulting from computer fraud. The policy was not ambiguous and no exclusions applied. The Court ruled that there was indeed of a plurality of insurance within the meaning of article 2496 C.C.Q. Also, the Co-operators policy and the Liberty policy contained excess clauses, resulting in the effect of such clauses having to be cancelled in order to prevent the insured from finding itself in a no-compensation situation, in accordance with the teachings of Family Insurance Corp3. In this case, the Court of Appeal determined that the Liberty policy was in fact specific insurance, as it covered a particular category of risks, namely fraud and embezzlement. As a result, this insurance became the primary insurance. On the basis of the foregoing, the Court of Appeal did not rule on the calculation method the Superior Court applied to apportion the insurers' contributions when insurance penalties of the same rank exist. Conclusion This judgment contains many noteworthy points. Among other things, it is important for insurers to make sure, when denying coverage, that all the reasons for refusing to pay benefits are fully stated. Also, with regard to a plurality of insurance, we note that even if an insurance policy includes an excess clause, it may not apply if the insured has another insurance policy with the same type of clause. Ultimately, the Court of Appeal confirmed that qualifying an insurance policy as specific should not be unduly limited to only cases where certain and determinate property is covered, and that the insurance granted for a particular category of risk may, depending on the context, constitute such specific insurance.   Canadian Anti-Fraud Centre, Phishing. Compagnie d’assurances générales Co-operators c. Coop fédérée, 2019 QCCA 1678. Family Insurance Corp v. Lombard Canada Ltd., [2002] 2 SCR 695.

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  • Insurers’ Duty to Defend: The Court of Appeal makes a new ruling

    The Court of Appeal of Quebec was once again called upon to rule on a Wellington type application aiming to force an insurer to defend its insureds1. Over the years, the scope of this duty has developed extensively in case law. In this particular case, the Court ordered that defence costs be shared, because it concluded that the part of the damages that could be covered by the insurance policy was divisible and identifiable. Facts Développement Les terrasses de l’Îles Inc., Darcon Inc. and Groupe Dargis Inc. (collectively the “Insureds”) had purchased a commercial general liability insurance policy (the “Policy”) from Intact Insurance Company (“Intact”). The Insureds sued Intact to force it to defend them in an action for damages brought against them by the Syndicat des copropriétaires Prince of Wales (the “Syndicate”), who alleged the existence of defects in the construction of a divided co-ownership building. The originating application was amended during the proceedings to add damages resulting from water infiltration, mould and structural problems found in the building. The issue in dispute was whether the damages claimed were covered by the Policy, and if, as a result, the insurer had the duty to defend. The decision by the court of first instance According to the Superior Court, there was no reason to consider a design or construction defect as a loss or accident, as the Insured were claiming. The Court thus concluded that the damages claimed did not result from a “loss” within the meaning of the Policy, but rather from defects attributable to errors the Insured or their subcontractors had made. This reasoning also applied to the allegations of water infiltration and mould resulting from alleged poor design or construction defects. In addition, the Superior Court concluded that, in any event, the damages claimed were not covered under clauses 2.7, 2.9 and 2.14 of the Policy, which covered, respectively, material damage during construction, material damage to the work and material damage resulting from the provision of professional services. The appeal The Court of Appeal unanimously overturned the trial judgment. First, the Court reiterated the general principles set out in Progressive Homes2 regarding insurers’ duty to defend, namely that this duty to defend will arise when the alleged material damages, by their true nature, may possibly fall within the scope of the insurance policy. Hence, (1) the insured must demonstrate that the damage could be covered by the insurance policy. Thereafter, (2) the insurer may defer liability by proving that a clear and unambiguous exclusion clause precludes coverage. At this point, (3) the insured may still argue that an exception to said exclusion applies. The Court of Appeal went on to reiterate the principle that the coverage provisions must be interpreted broadly and the exclusion clauses must be interpreted restrictively. On this basis, the Court of Appeal determined that the trial judge had interpreted the terms “loss” and “accident” too narrowly in light of the legal precepts drawn from the case law. In this case, the design or construction defects had caused material damage to the building that was not anticipated, triggering the insurer’s duty to defend. Moreover, because Intact had not proven that an exclusion precluded the insurance coverage, it could be required to compensate for material damage resulting from the deficiencies, but not for the costs of correcting the latter. In this case, the Court of Appeal noted that the Syndicate was alleging not only a series of defects, but also problems caused or likely to have been caused by the defects, including water infiltration. However, according to the Court of Appeal, it was not clear whether the alleged defects have caused damages (often referred to as resulting damages) and whether these damages were claimed. Nevertheless, the Court of Appeal concluded, based on the proceedings, that the duty to defend had been triggered. Despite this uncertainty, it also concluded that the part of the damage that could be covered was divisible and identifiable, and it limited the insurer’s duty to this part. Comments The Court of Appeal applies the principles developed by the courts with respect to the duty to defend. Doing so, the Court of Appeal however limited the insurer’s duty to defend despite the fact that it is not clear whether the claim actually included damages other than defects. This conclusion may pose serious practical difficulties, given that it is usually hard to establish a distinction between defense measures taken, and incidentally the costs, strictly in relation to defects and those related to the resulting damages. It should be noted that, in Cirvek Fund I3, the Court of Appeal held that the insurer's duty to defend should only be limited in cases where the insurer demonstrates that the tasks required for the defence of the covered items are distinct from those relating to the uncovered items.   Développement les Terrasses de l’Îles inc. v. Intact, Compagnie d’assurances, 2019 QCCA 1440 Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 SCR 245, 2010 SCC 33 245. Société d'assurances générales Northbridge (Lombard General Insurance Company of Canada) c. Cirvek Fund I, l.p., 2015 QCCA 168

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