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In a decision issued last May 20,1 the Québec Court of Appeal affirmed a judgment2 of the Superior Court of Québec rendered on October 28, 2013, which dismissed the action in damages for more than $7 million brought by a former representative in insurance of persons and in group savings plan brokerage, Mr. Alan Murphy, against the Autorité des marchés financiers (“AMF”). Facts Mr. Murphy was convicted in 2007 by the Disciplinary Committee of the Chambre de la sécurité financière of 32 charges,3his registration was permanently cancelled, as well as being temporarily cancelled for three years and one year, in respect of his areas of practice, and he was fined a total of $20,000. He then obtained a stay of both the permanent cancellation and the payment of the fines.4 Upon review by the Court of Québec, his sentence was reduced to a temporary cancellation for one year as well as the payment of a $12,000 fine.5 Despite the revocation of his certificate and the numerous notices from the AMF, Mr. Murphy continued acting as a representative, thereby significantly worsening his disciplinary record. Upon the expiry of the period during which his registration was temporarily cancelled, the AMF refused to renew Mr. Murphy’s certificate of practice. Claiming that in doing so the AMF had acted excessively, unreasonably and contrary to the requirements of good faith by multiplying the administrative obstacles, inspections and investigations against him, he sued the AMF in the Superior Court, contending that their actions demonstrated the bad faith required to substantiate a claim for $7 million in damages. Among other things, Mr. Murphy cited the judgment of the Court of Québec which had changed the sanction imposed on him and criticized the AMF. In response, the AMF argued that its refusal to issue a new certificate to Mr. Murphy was justified because he lacked the necessary degree of honesty to practise as a representative in insurance of persons and in group savings plan brokerage. Essentially, the issue raised was whether the AMF was protected by the relative immunity conferred on it for acts performed in good faith in the exercise of its functions, as provided in section 32 of the Act respecting the Autorité des marchés financiers.6 Judgment of the Court of Appeal Firstly, the Court stated that the clause protecting the AMF is comparable to the clause that protects the Quebec professional orders. It then cited the leading decision of the Supreme Court of Canada on relative immunity clauses, the Finney case,7 which states that bad faith includes, among other things, intentional fault, which can constitute an abuse of power. This concept also includes serious carelessness or recklessness which “implies a fundamental breakdown of the orderly exercise of authority, to the point that absence of good faith can be deduced and bad faith presumed.”8 Next, to determine whether Mr. Murphy had the necessary honesty to carry on his practice as an advisor in group insurance, the Court considered the numerous decisions which the AMF had rendered against him. It should be noted that Mr. Murphy took all the measures available to him to contest9 the decisions rendered against him, while choosing nonetheless to continue practising his profession, despite the fact he no longer had the certificate authorizing him to practice. As a result, several penal complaints10 were also lodged against him. The Court of Appeal found that the discretionary power conferred on the AMF under section 220 of the Act respecting the distribution of financial products and services11 (“ADFPS”) to assess the degree of honesty of persons applying for authorization to practise as a financial advisor, and to issue certificates based thereon, is within the exclusive jurisdiction of the AMF. The fact that Mr. Murphy had illegally engaged in activities reserved for representatives was a sufficient ground which allowed the AMF to conclude that he lacked a sufficient degree of honesty pursuant to sections 219 and 220 of the ADFPS. The Court found that the AMF had adequately assessed Mr. Murphy’s lack of honesty in refusing to issue his certificate. Accordingly, the Court of Appeal held that the AMF benefited from the immunity conferred by section 32 of the Act respecting the Autorité des marchés financiers against the action instituted by Mr. Murphy. It therefore upheld the judgment of the Superior Court dismissing his action. Murphy c. Autorité des marchés financiers, 2016 QCCA 878. Murphy c. Autorité des marchés financiers, 2013 QCCS 5764. Rioux c. Murphy, June 12, 2007, No. CD00-0404. Murphy c. Chambre de la sécurité financière, 2007 QCCQ 7950. Murphy c. Chambre de la sécurité financière, 2008 QCCQ 5427; Murphy c. Autorité des marchés financiers, 2010 QCCA 1078; application for leave to appeal to the Supreme Court of Canada dismissed (S.C. Can., 2011-01-27) 33860. Act respecting the Autorité des marchés financiers, CQLR, c. A-33.2. Finney v. Barreau du Québec, [2004] 2 S.C.R. 17. Ibid., para. 40. 2008-PDIS-0086 (July 25, 2008); 2008-DIST-0090 (September 19, 2008); 2009-PDIS- 0190 (July 23, 2009); Murphy c. Albert, 2009 QCCS 6366; Murphy c. Albert, 2011 QCCA 1147; 2011-PDIS-0249 (October 7, 2011); number unknown (January 10, 2012). Autorité des marchés financiers c. Murphy, 2010 QCCQ 11692; Murphy c. Autorité des marchés financiers, 2011 QCCS 3510; Murphy c. Autorité des marchés financiers, 2011 QCCA 1688; Autorité des marchés financiers c. Murphy, 2016 QCCQ 2992. CQLR, c. D-9.2.

On May 16, 2016, the Québec Court of Appeal adjudicated1 on whether a professional liability insurer can plead the nullity of a policy based on misrepresentations or concealment of facts by the insured. This decision is of interest because it addresses the novel issue of whether a liability insurer can claim the nullity of an insurance contract where it is compulsory for the insured to hold such insurance under the applicable legislation. Facts In preparing for their retirement, Jean-Pierre Brunet (“Brunet”) and Giovanni Berretta (“Berretta”) as well as their holding companies, invested more than $2.5M through a group savings plan brokerage firm, Triglobal Capital Management Inc. (“Triglobal”), and its president and director, Thémiskoklis Papadopoulos (“Papadopoulos”), who were registered with the Autorité des marchés financiers. Papadopoulos managed and invested the assets of Brunet and Berretta, as well as those of several other investors, in two offshore funds located in the Bahamas and in the Cayman Islands. Until the beginning of 2008, Axa Assurances Inc. (“Axa”) was the liability insurer for Triglobal and its 200 representatives. In 2007, a newspaper reported that Triglobal, Papadopoulos and another shareholder had engaged in wrongdoing with respect to the offshore funds in which Brunet and Berretta had invested. A few days later, the same newspaper published a corrected version of its previous article. At that time, based on the answers provided by Triglobal and its representatives, Axa decided to extend the coverage of the insurance policies then in effect, and to renew them thereafter. A few months after the renewal of the insurance policies, a freeze order, cease trade order and prohibition against acting as securities advisers were issued against Triglobal and Papadopoulos pursuant to certain provisions of the Act respecting the Autorité des marchés financiers2 and the Securities Act3 which were in force at that time. A provisional director was also appointed. A few days later, Axa informed Triglobal that it was canceling its insurance policy. The facts adduced into evidence revealed that Papadopoulos and one of his acolytes had funnelled certain investments entrusted to Triglobal through the offshore funds with the intention of defrauding certain investors, including Brunet, Berretta and their companies through the use of a fraudulent financial operation, namely a “Ponzi Scheme”. Brunet, Berretta and their companies sued Axa in its capacity as Triglobal’s liability insurer to recover their losses. Judgment of the Superior Court of Québec4 The trial judge held that Axa could seek the nullity of the policy. He found that Triglobal’s officers breached their obligation to disclose circumstances which would materially influence the risk, namely, the fraudulent scheme. Axa was justified in canceling the policy because if it had known all the circumstances surrounding the risk, it would not have agreed to issue the policy.Therefore, the Court dismissed the action brought by Brunet, Berretta and their companies. Judgment of the Court of Appeal La Cour d’appel confirme unanimement le jugement de la Cour supérieure. The Court of Appeal unanimously affirmed the Superior Court’s judgment. Firstly, the Court rejected the argument by Brunet and Berretta that Triglobal’s insurance policy could not be canceled because provisions of public order in the Act respecting the distribution of financial products and services (“ADFPS”)5 and the Regulation respecting firms, independent representatives and independent partnerships (“RFIRIP”)6 obliged Triglobal and its brokers to hold a liability insurance policy. After reviewing the relevant provisions of the ADFPS and the RFIRIP, it held that nothing in those provisions precluded the application of the fundamental principles governing the relationship between the insurer and the insured. Thus, in accordance with article 2410 of the Civil Code of Québec (“C.C.Q.”), a liability insurer can invoke the nullity of its own insurance policy where material circumstances were not disclosed to it that were likely to influence its decision to accept the risk. It noted that nothing in the cases of Souscripteurs du Lloyd’s c. Alimentation Denis & Mario Guillemette inc.,7 Audet c. Transamerica Life Canada8 or Larrivée c. Murphy9 supported the proposition that provisions of public order which require a professional to hold liability insurance should supersede the principle that the insured must disclose all of the circumstances that are relevant for the insurer’s assessment of the risk. Secondly, the Court of Appeal held that the conditions for the application of article 2410 C.C.Q. had been met. The misrepresentations and concealment of facts by Papadopoulos as to the true nature of his fraudulent activities when the disclosure of risks was made to Axa were attributable to Triglobal since, as director and president, he was its alter ego. In fact, the evidence showed that Triglobal communicated through him when it submitted the relevant information for the assessment of risk by Axa, while hiding the fraudulent scheme, thereby distorting the insured risk. Had the true risk been revealed to Axa, it would not have agreed to issue the insurance policy. This conclusion might have been different however if Papadopoulos had only been an employee of Triglobal. Article 2464 C.C.Q. obliges the liability insurer to pay the indemnity where the insurer covers the insured for harm caused by another person for whom the insured is responsible, such as the employer’s liability for its employee. Conclusion This decision is the first rendered by the Québec Court of Appeal on the issue of whether an insurer can seek the annulment of a liability insurance contract where it is imposed on the insured by law. It confirms that, unless prohibited by an express provision of the legislation, the insurer may apply for the nullity of the insurance policy where the conditions for doing so are met.   Brunet c. Axa Assurances inc., 2016 QCCA 832, juges France Thibault, Yves-Marie Morissette and Mark Schrager CQLR c. A-33.2. CQLR c. V-1.1. Brunet c. Axa Assurances, 2014 QCCS 5227. CQLR c. D-9.2. CQLR c. D-9.2, r. 2. 2012 QCCA 1376. 2012 QCCA 1746. 2014 QCCA 305.

Last April 4, in the case of Aldo Group Inc. v. Chubb Insurance Company of Canada,1 the Court of Appeal ruled on the insurer’s duty to defend its insured and on the interpretation to be given to a clause excluding insurance coverage for liability contractually assumed by the insured. The decision highlights the difficulties of interpretation sometimes faced by the parties and the courts in situations involving complex contracts where the parties have adduced no evidence of what their respective intentions were at the time the contract was concluded. It also illustrates the importance of assessing each insurance policy on a case-by-case basis. Facts Aldo Group Inc. (“Aldo”) had concluded various agreements including, in particular, with Moneris (“Moneris”), an agent of the Bank of Montreal (“BMO”), in order to facilitate purchases made by its clients with MasterCard credit cards. Pursuant to these agreements, Aldo agreed with Moneris to abide by certain IT security standards in order to protect the personal information of its clients. In particular, it undertook to pay penalties and other charges in the event of a breach of these standards. Moneris, in turn, entered into similar agreements with MasterCard. Aldo’s computing system was subsequently hacked, thereby jeopardizing its clients’ data. Pursuant to the aforesaid agreements, MasterCard charged Moneris with more than $4.8M in penalties and other costs, which Moneris in turn charged against Aldo. No debate was held on this issue as these charges were automatically deducted, so that they could not be contested by Aldo. Instead, Aldo filed a claim in Ontario against Moneris and MasterCard, alleging that the amounts were deducted unfairly. Aldo then applied to the Superior Court of Québec for an order against its liability insurer, Chubb Insurance Company of Canada (“Chubb”), to pay for its legal costs, i.e. its defence, in the action instituted in Ontario. Trial judgment The Superior Court dismissed the motion to force Chubb to pay for Aldo’s legal costs2 (its defence) in the action instituted in Ontario against Moneris and MasterCard. While the judge came to the conclusion, after interpreting the terms of the insurance contract between Aldo and Chubb, that the action instituted by Aldo was a valid claim within the meaning of the insurance policy, she found that the exclusion relating to liability assumed by contract applied. She also found that Aldo had contractually waived certain rights that it could have asserted against Moneris or MasterCard, thereby justifying the refusal by Chubb to assume its defence. Court of Appeal judgment Two preliminary comments by the Court of Appeal are important for parties and lawyers faced with resolving problems in the interpretation of insurance policies. Firstly, the Court of Appeal noted that this decision was not intended to “set a precedent” (“translation”), since it dealt with the analysis of contracts between the parties and an insurance policy specific to that case. In other words, each situation must be assessed in light of the particular insurance policy and the specific facts of each situation. Secondly, the Court of Appeal stressed that there was no evidence of the circumstances surrounding the negotiation and conclusion of the insurance contract between Aldo and Chubb, including the specific exclusion at issue in this case. In the absence of evidence of the negotiations that led to the conclusion of the contract, or of the application of this exclusionary clause in the past, the court’s analysis was limited to the text of the insurance policy alone, according to the applicable rules of interpretation. On the merits, the Court of Appeal concluded, firstly, that the action instituted by Aldo against Moneris and MasterCard was a claim within the meaning of the insurance policy. Given the terms of the contract, the mere fact that Aldo itself had instituted the proceeding instead of being sued was not a sufficient reason, by itself, to conclude that Chubb’s duty to defend had not been triggered. Secondly, the Court of Appeal held, contrary to the trial judge, that Aldo had not contractually waived the ability to assert certain rights against MasterCard and Moneris, as Chubb had claimed. The mere fact that deductions had been made for the amount of the penalties did not constitute a waiver of the right of contestation. Furthermore, Aldo could not be accused of having failed to cooperate with Chubb. Thirdly, the Court of Appeal confimed the trial judgment and concluded that Moneris’ claim against Aldo was contractual in nature. The exclusion contained in the insurance policy for any liability assumed by contract therefore applied. In interpreting the policy, the Court held that this was a clause by which the insurer excluded claims from the liability insurance policy so as to avoid being held liable for any defaults by the insured in fulfilling its contractual obligations, such as unpaid accounts or other debts to third parties. In addition, the Court held that the exception to this exclusion relating to extra-contractual liability did not apply because Moneris could not have asserted its rights against Aldo in the absence of the contract. The fact that third parties, such as the victims of the leak of personal information, might potentially have been able to assert their rights against Aldo, was not a situation that enabled the exception to the exclusion to apply in this case. The Court of Appeal therefore concluded that Chubb did not have the obligation to pay for Aldo’s legal costs (its defence) in the claim brought in Ontario against Moneris and MasterCard. Conclusions In summary, the Court of Appeal concluded as follows: while no legal action was brought against Aldo, Aldo’s claim against Moneris and MasterCard was a valid claim within the meaning of the insurance policy and the duty to defend it would have been triggered, had it not been for the exclusion; Aldo had not waived the ability to assert any right whatsoever which prejudiced Chubb, and Chubb could therefore not claim on this basis that its duty to defend Aldo was not triggered; Chubb nevertheless had no duty to pay for the legal costs, i.e. the defence, of Aldo’s claim against Moneris and MasterCard because this situation was covered by the clause excluding insurance coverage for any liability contractually assumed by Aldo. As the Court of Appeal noted, this case in no way changes the principles governing the duty to defend. In this regard, Justice Bich wrote as follows: [Translation] [53] One cannot deny the atypical nature of this situation, which is certainly not an ordinary case. But, one must also see that the interpretation reached by the trial judge is not meant to be a general postulate that is intended to transform the duty to defend. It is a specific solution, based on the specific terms of a specific contract. The fact that we are outside the norm does not mean, by itself (subject to a palpable and overriding error), that we are justified in substituting the trial judge’s interpretation of the text of the policy with a reading that would be consistent with Chubb’s conception thereof. [54] The defence contemplated in clause 16 is not therefore limited to contesting a legal action brought against the insured. This is, moreover, in no way incompatible with the meaning given by current dictionaries to the verb “to defend”/”défendre”, which is not limited to a defence against a duly instituted court action, but more generally connotes such concepts as to protect, sustain, help, intercede and support. The Court of Appeal also issued a warning to the parties to the insurance contract: if a contract such as an insurance policy must be interpreted with the help of other elements than the text, then evidence must be presented. Otherwise, only the text will guide the court, in light, of course, of the rules of interpretation as provided in the legislation and case law. Finally, each insurance contract must be construed in accordance with its own wording and the facts of the case. Therefore, even in the presence of similar terms, insurers and insureds must nevertheless avoid speaking in generalities when the time comes for determining whether, for instance, the insurer has the duty to defend or indemnify.   2016 QCCA 554 (Justices Yves-Marie Morrissette, Marie-France Bich and Marie St-Pierre); reasons given by Justice Bich. Aldo Group.inc. c. Chubb Insurance Company of Canada 2013 QCCS 2006 (Justice Marie-Anne Paquette).

On February 18 last, the Supreme Court of Canada1 denied leave to appeal in the matter of Intact Compagnie d’assurance c. 9221-2133 Québec inc.2, thus confirming the principles applicable to the duty of the insured to collaborate. The facts Following the theft of his vehicle, the insured filed a claim with his insurer, but refused to submit to a statutory examination and provide authorizations for obtaining additional information, for example, his driver file at the Société d’assurance automobile du Québec. The judgment At trial, the Court of Québec ordered the insurer to pay its insured the indemnity arising from the theft of the insured’s vehicle but, particularly due to the [TRANSLATION] “lack of collaboration” of the insured, dismissed his claim for trouble and inconvenience. The Court of Appeal reversed the judgment and concluded that the insured has a duty to closely collaborate with his insurer in the context of settling a loss, which includes the duty to answer the questions of the insurer respecting all the circumstances surrounding the loss and provide all the documentation in support of his claim. The insured must also agree to the collection of the necessary documents and sign the authorizations required for that purpose. The duty of the insured to collaborate is not subject to any duty of the insurer to conduct investigations with third parties. In the circumstances, the Court concluded that since the insured demonstrated bad faith by systematically refusing to answer the questions of the insurer, which suffered harm as a result, he had no right to be indemnified. The refusal of the Supreme Court to review this issue also confirms the principles already established by the Court of Appeal respecting the duty of the insured to collaborate3.   9221-2133 Québec inc., F.A.S.R.S. Centre Mécatech c. Intact Compagnie d’assurance, 2016-02-18, 36569. 2015 QCCA 916. See more particularly the following cases: Northumberland General Insurance v. Genziuk, J.E. 81-1072 (C.A.) and Di Capua c. Barreau du Québec, J.E. 2003-1310 (C.A.).

On January 16 last, the Supreme Court of Canada refused to grant leave to appeal by Lombard following a judgment rendered on June 20, 2013 by the Ontario Court of Appeal.1This decision deals with the issue of overlapping excess and umbrella policies.THE FACTSIn January 1995, an apartment building was destroyed by fire. Six people died and many others were injured. Actions were then instituted by the victims for several millions of dollars against: Axes Investment (“Axes”) the owner of the building Tandem Group Management (“Tandem”, a building manager) Lombard and Aviva insured Axes and Tandem’s liability in the following way: Lombard was the primary insurer of Axes and Tandem with a $1M policy limit Lombard was the umbrella insurer of Axes and Tandem for a $9M policy limit Aviva was the excess insurer of Tandem for a limit of $5M Within the scope of the liability proceedings instituted by the victims against Axes and Tandem, Lombard assumed Axes and Tandem’s defence by retaining one and the same counsel. The same defence was filed by Lombard, Aviva, Axes and Tandem and none of them ever requested that the liability between Axes and Tandem be apportioned. Axes and Tandem were found liable as if they were a single defendant.Lombard took the position that Aviva’s excess policy would be required to respond after Lombard’s primary policy and that Lombard’s umbrella policy was triggered only after Aviva’s $5M policy was exhausted. Aviva took the position that Lombard’s policy should be next to respond completely as it covered both Tandem and Axes.Following this decision, a judgment of the Ontario Court of Appeal confirmed a priority proceeding that the Aviva’s excess policy was triggered prior to Lombard’s umbrella policy with respect to Tandem’s liability only. This decision is known as the “Ranking Decision”.Faced with a threat of having to pay punitive damages and a refusal of Lombard to a joint contribution, Aviva “blinked” and paid the balance of the claims made both against Axes and Tandem in the amount of almost $2.5M as the two were held solidarily liable. Lombard had paid the first million dollars.Neither the Priority decision nor the Ranking Decision addressed whether, or to what extent, liability would be shared if Aviva’s payment on behalf of Tandem exhausted the liability of both defendants, jointly.Aviva then sued Lombard in order to claim the payments made on behalf of Axes, whom it did not insure. Lombard argued that its umbrella policy did not apply once Aviva’s excess policy limits were exhausted. The Superior Court ordered Lombard to reimburse half of the damages by Aviva. Lombard appealed.ONTARIO COURT OF APPEAL JUDGMENTRelying on the Supreme Court of Canada’s decision in Family Insurance Corp. v. Lombard Canada,2 and on the theory of equitable contribution and the restitutionary principles of unjust enrichment, both notions imposed by equity, the Court of Appeal of Ontario confirmed the judgment holding Lombard responsible. The theory of equitable contribution between insurers was applied in this case to require Lombard to contribute to Aviva’s payment of the loss. Payment of the loss by Aviva was, in reality, according to the Court of Appeal, payment on behalf of both Tandem and Axes. Lombard insured both Tandem and Axes. The Court held that while Lombard was not required to respond next to the loss on behalf of Tandem in light of the Ranking Decision, it was required to respond to the loss on behalf of Axes and should therefore contribute 50% of the total loss.In fact, since the two insurers purposely decided to not request an apportionment of liability between Axes and Tandem, they rendered themselves liable towards the victims to indemnify them completely and equally. In other words, Lombard and Aviva were each equally obligated to respond to the plaintiffs’ claim in full. The Court added that “The fact that Aviva blinked first” does not detract from Lombard’s legal obligations to respond, had the tort plaintiffs pursued Aviva alone. “Blinking” cannot be the defining principle of insurance law upon which the respective responsibilities of Aviva and Lombard for responding to the losses are determined.CONCLUSIONThis decision is interesting notably with respect to the impact that the choice of the defence strategy can have on another insurer. Hence, if for strategic or economic reasons an insurer decides not to request the apportionment of liability between insureds and there is a judgment without the apportionment of liability, it may be ordered to pay its part of indemnity to the victims._________________________________________1 Aviva Insurance Company of Canada v. Lombard General Insurance Company of Canada, 2013 ONCA 416.2 [2002] 2 S.C.R. 695.

On February 20, 2014, the Supreme Court of Canada allowed the motion for leave to appeal the judgment of the Court of Appeal of Québec rendered in the case of Theratechnologies inc. v. 121851 Canada Inc.1. In this unanimous judgment, the Court of Appeal decided that a judgment authorizing a class action based on section 225.3 of the Securities Act (Quebec)2 may be appealed, contrary to the current rules under the Code of Civil Procedure (hereinafter, the “CCP”), which does not authorize the appeal of a judgment allowing a motion to institute a class action.More details on this judgment of the Court of Appeal are available in our newsletter In Fact and In Law Express entitled “An unprecedented decision of the Court of Appeal: a judgment authorizing a class action under the SA may be appealed” authored by Sophie de Saussure, Josianne Beaudry and Jean-Philippe Lincourt.The upcoming judgment of the Supreme Court of Canada will be all the more interesting since the Act to establish the new Code of Civil Procedure was assented to on February 21, 2014 and makes some changes respecting class actions, including that to allow the appeal with leave of a judgment allowing a motion to institute a class action. Lavery will shortly publish a bulletin discussing these modifications.________________________________1 2013 QCCA 1256. 2 R.S.Q., c. V-1.1.

Last December 23, the Supreme Court of Canada partially overturned the decision of the Quebec Court of Appeal in the case of Cinar Corporation v. Robinson1 and reinstated most of the conclusions of the Quebec Superior Court.BACKGROUNDIn the 1980s, Claude Robinson (“Robinson”) developed a project for a television series entitled “The Adventures of Robinson Curiosity” (“Robinson Curiosity”). He partnered with Pathonic to whom he had presented his project. His copyright was registered shortly afterward and Productions Nilem Inc. (“Nilem”), of which he was the sole shareholder, was named owner of the copyright. In 1986, Pathonic partnered with Cinar so that Cinar could represent Pathonic’s interests in the United States. Cinar’s directors, Micheline Charest and Ronald Weinberg, were provided with a copy of all of the documents for the Robinson Curiosity project. However, the project never saw the light of day.In parallel with Robinson’s activities, during the 1990s, a producer with France Animation, Christophe Izard, presented a project for a televised series whose main character was named Robinson Sucroë (“Sucroë”). Cinar was involved as early as 1992 in the production of this project, and, as of 1993, in the writing and co-script writing under contracts with France Animation.Robinson continued his work on his Curiosity project during 1994. In August 1995, Cinar registered copyright to the Sucroë project which was first broadcast in September 1995. Robinson immediately noticed similarities between the Sucroë project and his Curiosity project.In July 1996, Robinson and Nilem Inc. brought an action for damages and an injunction against Cinar, Charest, Weinberg, France Animation, Izard and other European partners, including Ravensburger and the BBC, alleging plagiarism of their work.DECISION OF THE SUPERIOR COURT OF QUÉBECAfter 83 days of trial, Justice Claude Auclair concluded that the defendants had had access to the Robinson Curiosity project and work during the 1980s.The judge found that even though the Robinson Curiosity work had not been completed, it was nevertheless an original work because it was sufficiently developed and advanced. There were many similarities between the characters and drawings of Sucroë and the original Robinson Curiosity project, despite some misleading changes. According to the Court, a layperson would have been convinced of the similarity, which gave rise to a presumption of infringement that was not rebutted by the defendants.The Court found the defendants solidarily liable and that Cinar and its two directors, Charest and Weinberg, had violated their obligations of good faith and loyalty. Therefore, Charest and Weinberg could not hide behind the corporate veil to escape their liability.The injunctions issued applied against the BBC preventing it from broadcating Sucroë. The Court also ordered that the copies be returned, followed by their destruction within 60 days.As for the damages, Justice Auclair ordered the defendants to pay a total of $5,224,293, detailed as follows:  $607,489 in compensatory damages for pecuniary loss; $1,716,804 in loss of profits (50% of the profits earned by the Sucroë project, given the plaintiffs’ partnership with Pathonic); $400,000 for the psychological harm suffered by Robinson; $1,000,000 in punitive damages; $1,500,000 for costs on a solicitor-client basis, since the defendants tried to exhaust the plaintiffs in their conduct of the proceeding. COURT OF APPEAL’S DECISIONThe Court of Appeal allowed the appeal in part. It upheld the trial judge’s decision on the infringement of Robinson’s work, finding that there was no error in the trial judge’s reasoning. The Court also affirmed the liability of Cinar and of Weinberg, both personally and in his capacity as liquidator of the estate of the deceased, Micheline Charest as well as of Izard.However, the Court of Appeal reduced the damage award to a total of $2,736,416. As for the loss of profits, the Court set aside the awards against Weinberg and Izard because only Cinar and France Animation benefited from the use of the Sucroë work. The Court also set aside the award of $1,117,252 relating to the musical rights, based on the finding that the Robinson Sucroë musical work was original and dissociable from the Curiosity project. According to the judgment, there was therefore no violation of Robinson’s copyright in this respect.Finally, according to the Court of Appeal, the psychological harm suffered by Robinson was a bodily injury of a non-pecuniary nature for which compensation was limited by the cap set by the Supreme Court of Canada.2 Since the present value of this cap was $242,700, the Court awarded 50% of this amount, or $121,350, in light of the circumstances and the seriousness of the psychological harm.The Court of Appeal also reduced the amounts awarded in punitive damages and assessed them individually at $100,000 for Cinar and $50,000 each for Weinberg, Charest and Izard. It further declared that these awards were not solidary.As for costs, the Court of Appeal upheld the trial judge’s decision, but did not allow the solicitor-client costs incurred in the appeal proceedings.THE SUPREME COURT’S DECISIONIn a unanimous judgment the reasons of which were written by Chief Justice McLachlin, the Supreme Court upheld the judgment of the Court of Appeal on the issue of the defendants’ liability. It stated that one must determine the cumulative effect of the copied features of the Curiosity project in deciding whether they amount to a substantial part of Robinson’s skill and judgment expressed in his work as a whole. To determine whether a substantial part has been copied, one must conduct a qualitative and holistic assessment of the similarities between the works, taking into account the relevant resemblances and differences. In the absence of a palpable and overriding error in both the trial judge’s and Court of Appeal’s assessment of the facts, the Supreme Court refused to intervene and affirmed the defendants’ liability.On the assessment of damages, the Court noted that the Court of Appeal could not intervene unless there was a palpable and overriding error in fact by the trial judge and reassessed each head of damages. It set the amount to which Robinson and Nilem was entitled at $4,379,293. With respect to the loss of profits, the Supreme Court found that the trial judge had committed no error in allowing the amount for the soundtrack to the work on the basis that it was indissociable from the work itself, and reinstated the holding of the trial judgment on this point. However, it found that this award must not be solidary since its aim was the disgorgement of the profits illegally obtained by each of the defendants personally. Accordingly, Charest, Weinberg and Izard were not personally bound to disgorge the profits since they did not benefit therefrom.As regards the non-pecuniary damages, the Supreme Court held that the application of the cap on claims should not be extended beyond those stemming from bodily injury. In this case, the non-pecuniary damages suffered by Robinson did not stem from a bodily injury. It should rather be characterized as psychological suffering stemming from material injury, i.e. the infringement of his copyright which is equivalent to a breach of his property rights. The Court reinstated the trial judgment and confirmed that Robinson was entitled to the amount of $400,000 under this head.The Court also confirmed that punitive damages cannot be awarded on a solidary basis. However, it found that, while the Court of Appeal was correct in reassessing the amount thereof, it did not give sufficient weight to the gravity of the defendants’ conduct. In the Court’s view, the amount of $500,000 achieved an appropriate balance between the overarching principle of restraint that governs the awarding of such damages and the need to deter conduct of such gravity. It apportioned the liability for these damages, awarding $200,000 against Cinar and $100,000 against each of Weinberg, Charest and Izard.COMMENTSThis decision finally brings to a close this dispute between the parties which has lasted nearly 18 years, and largely upholds the trial judge’s analysis of the case.The judgment will certainly have a significant impact on subsequent case law not only on copyright, but also on other areas of the law, particularly the characterization of psychological damages based on their source and the refusal to apply the cap on non-pecuniary damages for psychological harm stemming from material prejudice. The judgment will also guide the courts in the awarding of punitive and exemplary damages and on the principles of solidarity applicable thereto._________________________________________ 1 2013 SCC 73.2According to the trilogy of cases, i.e. Andrews v. Grand & Toy Alberta Ltd. [1978] 2 S.C.R. 229, Thornton v. Board of School Trustees of School District No. 57 [1978] 2 S.C.R. 267, and Arnold v. Teno [1978] 2 S.C.R. 287, which set this cap at $100,000 in 1978.

On January 16, 2014, the Supreme Court of Canada1 affirmed the Court of Appeal of Québec2 judgment which authorized the class action brought against Vivendi Canada Inc. (“Vivendi”). This important decision confirms, among other things, that the rules for authorizing class actions in Quebec are more liberal than those in the common law provinces.THE FACTSSeagram Ltd. (“Seagram”), which was established in 1857, is a producer of wine and spirits. Its head office and principal place of business are in Montreal.In 1977, Seagram set up a supplemental health insurance plan for its management and non-unionized employees (the “Plan”). The Plan covers eligible employees both while employed and after they retire.In 1985, Seagram unilaterally amended the terms of the Plan, adding a clause pursuant to which it reserved its right to modify or suspend the Plan at any time.In December 2000, Vivendi S.A. acquired Seagram, which had over 700 employees at the time.In December 2001, Seagram’s assets relating to the production of wine and spirits were sold to Pernod Ricard and Diageo, and Seagram ultimately became Vivendi.In September 2008, Vivendi advised the retirees and beneficiaries that it would be making several amendments to the Plan which would take effect on January 1, 2009 (the “Amendments”):  the annual deductible retirees and beneficiaries had to pay would be substantially increased; only prescription drugs on the list of drugs for the province of residence of retirees or beneficiaries would henceforth be reimbursed; a lifetime maximum of $15,000 for all coverage under the Plan would be introduced whereas there was none before.In 2009, Michel Dell’Aniello applied to the Superior Court of Québec for authorization to institute a class action and asked it to ascribe to him the status of representative of the following persons:“[TRANSLATION] All retired officers and employees of the former Seagram Company Limited who are eligible for post-retirement medical care under Vivendi Canada Inc.’s health care plan (“Plan”) and eligible dependents within the meaning of the Plan (“beneficiaries”), as well as, with regard to the damages claimed, the successors of any such officers, employees or beneficiaries who have died since January 1, 2009.” In his action, Mr. Dell’Aniello sought, among other things, a declaration that Vivendi illegally amended the Plan, and to have the Amendments cancelled and the Plan reinstated as it was before the Amendments. The proposed class includes some 250 retirees or surviving spouses of retirees who worked in six provinces—134 in Quebec, 82 in Ontario, 3 in Alberta, 16 in British Columbia, 2 in Saskatchewan and 13 in Manitoba.THE SUPERIOR COURT OF QUÉBEC DECISION3On August 3, 2010, the Superior Court of Québec dismissed Mr. Dell’Aniello’s motion for authorization to institute a class action. Contrary to what Vivendi had argued, Justice Mayer held that, pursuant to article 3148 (3) C.C.Q., Quebec authorities have jurisdiction to hear the action provided the class action is authorized. He found, among other things, that it is easier and more convenient to institute the class action in Quebec since over half the potential group members, i.e. 53.7%, live in Quebec.However, the judge refused to authorize the class action, finding that it was a range of individual recourses and that the requirement that there be similar or related questions of law or fact set out in article 1003 a) C.C.P. was not met. In his view, the class action is therefore not the most appropriate procedural vehicle. He was of the opinion that if the action was authorized, the judge would have to conduct a detailed review of a multitude of individual circumstances, which would constitute a multitude of mini-trials. Because the right to insurance benefits crystallizes at the time of retirement, the intention of the parties with respect to the vesting of rights must be determined as of that time. Hence, the contract together with the communications between the employer and each class member must be examined to determine whether any rights have vested.The judge also examined the situation of certain subgroups of retirees and beneficiaries and said that their right to post-retirement insurance benefits did not crystallize, since the unilateral amendment clause added in 1985 is inconsistent with an intention to confer a vested right.Lastly, the judge added that the diversity of the legislative schemes applicable to individual claims, which stems from the fact that the retirees had worked in six different provinces, shows the lack of homogeneity of the proposed group and supported a refusal to authorize the class action.THE COURT OF APPEAL OF QUÉBEC DECISION2On February 29, 2012, the Court of Appeal of Québec quashed the judgment in first instance and authorized Mr. Dell’Aniello to institute a class action. Justice Léger, writing for the Court, held that at the authorization stage, the court’s analysis must be limited to whether there is a prima facie case. According to the Court of Appeal, the motion judge ruled on the merits of the case in determining that the right of certain retirees and beneficiaries to post-retirement insurance benefits had not crystallized. This showed that he conducted an in-depth analysis of individual questions rather than a preliminary analysis. The Court of Appeal was of the opinion that the authorization stage is a mere screening mechanism and that, accordingly, the motion judge overstepped the bounds of this function.After examining the applicable criteria and the allegations in Mr. Dell’Aniello’s motion, the Court of Appeal held that there was in fact a common question at the heart of the class action, namely the validity or legality of the Amendments made to the Plan. The Court held:[Translation] “[64] In this particular context, I believe that the main question at issue is whether the 2009 Amendments, which apply to all members of the Class, are valid or lawful. That issue can obviously be broken down in turn into specific questions which together constitute the following related questions which the appellant has identified in this motion for authorization. Accordingly, if the analysis is based on the questions actually at issue rather than on factual differences that are not relevant at the preliminary stage, it is inappropriate to create subgroups in order to decide the motion.” The Court added that the multitude of legal principles which could apply to each group member was not the core of the dispute but involved the existence of vested rights.The Court of Appeal held that the common question raised in Mr. Dell’Aniello’s application for authorization to institute a class action is related for all the group members and that the subsequent questions the Court will have to decide if the action is authorized cannot be examined at the authorization stage.THE SUPREME COURT OF CANADA DECISION1The Court affirmed the Court of Appeal judgment and held that the Superior Court judge should have authorized the class action pursuant to the criteria set forth in article 1003 C.C.P.Firstly, the Court of Appeal was justified in intervening and amending the authorization judgment. It is not up to the authorization judge to rule on the merits of the case. By acting as he did, the motion judge committed an error in assessing the relatedness criterion of article 1003 a) C.C.P.For a question to be common in a class action, success for one member of the class does not necessarily have to lead to success for all the members. However, success for one member must not result in failure for another.Thus, and particularly in Quebec, the relatedness requirement set out in the Code of Civil Procedure must be interpreted liberally. The Supreme Court warns against importing common law principles into the analysis of the tests set out in the Code of Civil Procedure and states:“[52] Second, if art. 1003(a) is compared with the legislation of the common law provinces, it can be seen that the wording used to establish the commonality requirement is different in the latter. For example, the requirement is expressed in broader and more flexible terms in Quebec’s C.C.P. than in Ontario’s legislation, which requires the existence not merely of similar or related questions, but of “common issues”: Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1)(c). Moreover, the wording of the Ontario statute is used in the legislation of all the other common law provinces of Canada that have legislated with respect to class actions: Class Proceedings Act, S.A. 2003, c. C 16.5, s. 5(1)(c); Class Proceedings Act, R.S.B.C. 1996, c. 50, s. 4(1)(c); The Class Actions Act, S.S. 2001, c. C 12.01, s. 6(1)(c); Class Proceedings Act, C.C.S.M. c. C130, s. 4(c); Class Proceedings Act, S.N.S. 2007, c. 28, s. 7(1)(c); Class Proceedings Act, R.S.N.B. 2011, c. 125, s. 6(1)(c); Class Actions Act, S.N.L. 2001, c. C 18.1, s. 5(1)(c).”(emphasis added)and further on:“[57] Thus, the Quebec approach to authorization is more flexible than the one taken in the common law provinces, although the latter provinces do generally subscribe to an interpretation that is favourable to the class action. The Quebec approach is also more flexible than the current approach in the United States: Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). As Professor Lafond says, [TRANSLATION] “Quebec procedure surpasses in this regard the procedure of the other Canadian provinces, and of England and the United States, which struggle with the rigid concepts of 'same interest' or 'common interest', and of 'predominance of the common issues'”: Le recours collectif comme voie d’accès à la justice pour les consommateurs, at p. 408.”In short, authorization judges should not place undue emphasis on the fact that several individual questions might have to be analyzed. Instead, they should ask themselves whether the person who wishes to bring a class action has established the presence of an identical, similar or related question that can serve to advance the resolution of all the class members’ claims and that could ultimately have an effect on the outcome of the case.According to the Supreme Court, the diversity of the legislative schemes that could apply to the individual claims also does not constitute a sufficient basis for refusing to authorize the class action.The Supreme Court also points out that the principle of proportionality set out in article 4.2 C.C.P. is not a separate fifth criterion to be considered in assessing the authorization of a class action. Although the principle of proportionality may be used in assessing each of the criterion of article 1003 C.C.P., they are exhaustive. Where the authorization judge is of the opinion that the four criteria of article 1003 C.C.P. are met, he must authorize the class action without asking whether it is the most appropriate procedural vehicle.The Supreme Court therefore held that the questions raised in Mr. Dell’Aniello’s motion are sufficiently related and similar to justify a class action.CONCLUSIONThis decision reminds us firstly that the conditions for authorizing a class action are more liberal in Quebec than elsewhere in Canada, as the Supreme Court also recently noted in Infineon4. Although decisions involving the commonality requirement rendered by common law courts may sometimes be used as a guide, they must be analyzed with caution. In the United States, the courts apply the concept of the predominance of the common issues. In Quebec, it need only be shown that there is a common issue which is relevant and significant enough for all the class members, as the Court of Appeal pointed out in Suroît5. Furthermore, in our opinion, some class actions which raise intrinsically individual questions (such as misrepresentation in contractual matters) should not meet the requirements for authorizing an action.________________________________1 Vivendi Canada Inc. v. Dell’Aniello, 2014 SCC 1, LeBel, Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner, JJ. (reasons drafted by LeBel and Wagner, JJ.). 2 Dell’Aniello v. Vivendi Canda Inc., 2012 QCCA 384 (Jacques Chamberland, André Rochon and Jacques A. Léger, JJ.). 3 Dell’Aniello v. Vivendi Canada Inc., 2012 QCCS 3416 (Paul Mayer, J.). 4 Infineon Technologies A.G. v. Option consommateurs, 2013 CSC 59. 5 Collectif de défense des droits de la Montérégie (CDDM) v. Centre hospitalier régional du Suroît du Centre de santé et de services sociaux du Suroît, 2011 QCCA 826.

On October 31, 2013, the Supreme Court rendered three judgments with respect to class actions at the authorization or certification stage, one from the Province of Quebec1 and the other two from the Province of British Columbia.2In all three cases, the facts raised issues with respect to the price fixing of consumer products in contravention of the Competition Act,3 notably through a conspiracy. The class representatives sought to institute class actions against the persons or companies allegedly responsible for the price fixing, which raised the price of these products, on behalf of members of the class of persons who directly or indirectly purchased the products. Among other things, the three actions alleged the civil fault of the defendant companies.In the Infineon Technologies case ('Infineon'), the manufacturers of dynamic random-access memory microchips (“DRAM”), which allow information to be electronically stored and rapidly retrieved for use in a wide range of electronic devices, were alleged to have taken part in an international conspiracy to fix the price of the product, resulting in an increase in the purchase price. In the Pro-Sys Consultants Ltd. case ('Pro-Sys'), Microsoft was alleged to have engaged in unlawful conduct by overcharging for its operating systems and applications software. And in the Sun-Rype Products Ltd. case ('Sun-Rype'), manufacturers of food products allegedly engaged in an illegal conspiracy to fix the price of high fructose corn syrup used in various food products, including, for example, soft drinks.The three decisions raised the issue as to whether indirect purchasers of the products, hence, customers who did not purchase the product directly from the alleged overchargers, but who purchased it indirectly from a party further down the chain of distribution, could institute proceedings directly against the person alleged to have fixed the price. The Court’s reasons in answer to this question were rendered in the Pro-Sys matter and applied in the other two cases. In so doing, the Supreme Court resolved a judicial controversy over the rights and recourses of indirect purchasers in similar circumstances.In Sun-Rype, the Court dealt with the question as to whether a class of persons consisting both of purchasers who acquired the product directly from the party allegedly responsible for the price fixing, and of indirect purchasers, constituted an identifiable class.Finally, in Infineon, the Court dealt with the issue of the jurisdiction of the Quebec courts to authorize the bringing of a class action in the context where a product was purchased on the Internet or “online” from a company which manufactures and conducts business outside the province, such as a distance contract.Indirect Purchasers’ Right of Action: The Pro-Sys CaseIn reasons delivered by Justice Rothstein, the Court concluded that indirect purchasers could bring an action to recover losses which they suffered in purchasing a product whose price had allegedly been increased illegally. Justice Rothstein dismissed the argument pursuant to which only direct purchasers, who may have subsequently transferred the additional costs to subsequent purchasers, had a right of action. The risk of multiple recovery and the complexities of the evidence which the representatives of the class would have to adduce did not constitute sufficient reasons to stand in the way of allowing indirect purchasers to make their case against those responsible for the price fixing. Moreover, according to Justice Rothstein, the deterrence function of the Competition Act was not impaired by the actions of indirect purchasers.The Supreme Court of Canada therefore distinguished its position from that of the Supreme Court of the United States,4 which concluded that indirect purchasers had no cause of action against those responsible for the price fixing. According to Justice Rothstein, the refusal by a number of state level courts to follow the federal precedent, and the more recent doctrinal discussions in support of authorizing the right of action of indirect purchasers against the perpetrator of the illegal price fixing, favors the position of allowing the indirect purchasers’ right of action.After reviewing the criteria for certification, the Supreme Court concluded that they had all been met, and therefore granted the certification of the action as a class proceeding.Direct and Indirect Purchasers as Class Members: The Sun-Rype CaseIn a judgment for the majority, Justice Rothstein5 concluded that a class made up of indirect and direct purchasers met the requirement for an identifiable class. Although certain members of the class might not have been able to prove a direct individual loss, the proposed class did not give rise to sufficient difficulties that would have warranted dismissing the action.However, in this case, the Court concluded that the criteria for certification had not been met. Based on the evidence, it was impossible for indirect purchasers to prove they had purchased a product containing high fructose corn syrup, and it was therefore impossible to prove they had suffered a loss. The Court found that there was therefore no factual basis to determine the class membership of indirect purchasers. According to Justice Rothstein, the Appellants had not met the relatively low evidentiary burden to adduce evidence to establish some basis in fact that at least two class members could be identified.In the dissenting opinion written by Justice Karakatsanis and concurred in by Justice Cromwell, Justice Karakatsanis came to the conclusion that the facts as alleged provided a sufficient evidentiary basis to reach a finding that there was “an identifiable class of two or more persons”.According to the dissent, evidentiary difficulties should not stand in the way of certification.Jurisdiction of the Quebec Courts: The Infineon CaseIn Infineon, the Petitioner, Option consommateurs, sought authorization to institute a class action against the manufacturers of DRAM chips used in various electronic devices, including personal computers. The designated class representative purchased her computer online by credit card from a company operating exclusively outside Quebec and which had no place of business in Quebec. Option consommateurs alleged that the price-fixing conspiracy artificially inflated prices of DRAM and products containing DRAM sold in Quebec. The manufacturers argued that the Quebec courts lacked jurisdiction because the contract was formed outside Quebec and none of the alleged faults, including the conspiracy, was committed in Quebec.The Supreme Court acknowledged that the challenge to Quebec’s jurisdiction could properly be raised and dealt with at the outset of a proceeding for the authorization of a class action. Even if a Quebec court concludes that it has jurisdiction, the issue may still be raised again at a later stage of the proceeding because the judgment rendered at this stage is only an interlocutory decision.Relying on article 3148 of the Civil Code of Quebec, Justices LeBel and Wagner, in an unanimous decision by the Court, concluded that the Quebec courts had jurisdiction. According to them, the alleged economic damage suffered by the purchasers of the products consisted of a higher price resulting from the conspiracy and constituted a sufficient connection with the Province of Quebec to ground jurisdiction. In other words, since the pecuniary loss was suffered in Quebec, this gave the Quebec courts jurisdiction. Moreover, the contract at issue was a “distance contract”, as defined by the Consumer Protection Act,6 which provides that it is deemed to be entered into at the address of the consumer, which, in this case, was in Quebec.Finally, Justices LeBel and Wagner concluded that the criteria for the authorization of a class action set out in article 1003 of the Code of Civil Procedure ('C.C.P.') had been met. They reiterated that, at this preliminary procedural stage, the criteria for the authorization of a class action must be interpreted and applied broadly, and that the burden is one of demonstration and not of proof. The Court noted that, in Quebec, the burden at the authorization stage is less onerous than at the certification stage in other Canadian jurisdictions. Thus, the Court highlighted that, in other Canadian jurisdictions, indirect purchasers would have to show that their claim has a sufficient basis in fact, and would have to produce expert testimony demonstrating an aggregate loss. To impose such a burden would be inconsistent with the requirements of article 1003 C.C.P. The class action was therefore authorized.ConclusionThese three judgments will certainly facilitate the authorization of class actions by direct and indirect purchasers. Moreover, consumers who purchase products over the Internet from the comfort of their homes may have a right of action against the persons that are alleged to have increased the prices. In the context of purchases in Quebec, where the economic damages are suffered in Quebec, consumers, and the associations who represent them, will in all likelihood resort to launching class action proceedings in Quebec, even where the vendor or manufacturer is located outside Quebec._________________________________________1 Infineon Technologies AG v. Option consommateurs, 2013 SCC 59.2 Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57 and Sun-Rype Products Ltd. v. Archer Daniels Midland Company, 2013 SCC 58.3 R.S.C., 1985, c. C-34.4 Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).5 With Chief Justice McLachlin and Justices LeBel, Fish, Abella, Moldaver and Wagner.6 R.S.Q., c. P-40.1.

In a recent decision by the Court of Appeal of Québec, the Honourable Jacques Chamberland, J.C.A. reviewed the application of exclusion clauses contained in a home insurance policy in the context of criminal activities1.THE FACTSThe Appellant, Union canadienne compagnie d’assurance insured the building of respondent, Mrs. Lise Houle and her spouse, Christian Alexandre. The latter was growing cannabis in the insured building. In fact, the residence (the kitchen and possibly the basement) was used for germinating the cannabis seeds while the garage was used for growing the seedlings after they were planted. This was unknown to Mrs. Houle, who never went into the garage as she was disabled.A fire caused by the electrical installations used for growing cannabis occurred on August 8, 2006 and damaged both the residence and the garage.EXCLUSIONSThe insurer relied on the two following exclusions to deny coverage to its insured:  [translation] “16. In addition to the exclusions set out elsewhere in this contract, WE DO NOT COVER:(…)The constructions:(…)Occupied by the INSURED and used for illegal or criminal activities.21. The LOSSES caused by the criminal acts (…) of an INSURED.” THE JUDGMENT IN THE FIRST INSTANCEIn the first instance, judge Sophie Picard first examined exclusion clause 16. She concluded that in the absence of the words “in whole or in part”, as was the case in the decision Promutuel Bagot v. Lévesque2, this exclusion only applied to constructions of which “a substantial part” is used for criminal activities. Therefore, she was of the view that the garage was excluded, but not the residential building, which was only used in part for growing marijuana.The judge also concluded that exclusion clause 21 applied to Mr. Alexandre, who was producing cannabis, but not to Mrs. Houle, who was completely unaware of these activities.THE JUDGMENT OF THE COURT OF APPEALThe Court of Appeal examined exclusion clause 16, first referring to article 2402 par. 1 C.C.Q., which provides that an insurer may be released from its obligations in the events that a breach of the law constitutes a criminal act:  « 2402. In non-marine insurance, any general clause whereby the insurer is released from his obligations if the law is violated is deemed not written, unless the violation is an indictable offence. (…)» The Court noted that the clause of the policy provided for an exclusion for the “constructions” and not the “insured premises”, used for illegal activities. Accordingly, this clause had to be analyzed in relation to each of the constructions and not the insured premises as a whole, as the Appellant was maintaining.However, contrary to the trial judge, the Court of Appeal was of the view that it was wrong to tie the application of the exclusion clause to the extent the building was used for criminal activities. [translation] “ [26] In my view, the occupation of a construction by the insured and its use for illegal activities are sufficient to conclude that this construction is not insured, regardless of whether all or only part of the construction is used.” Despite the fact that the words “in whole or in part” are absent from the wording of the clause, it remains that it is not necessary for the insurer to demonstrate that a “substantial part” of the construction has been used for criminal activities. The Court of Appeal therefore concluded that the issue to be decided was whether the construction had been used for criminal activities, without it being necessary to determine the degree of such use. In the circumstances, since both the residence and the garage were used for criminal activities, both constructions were excluded from insurance coverage. In view of this conclusion, the Court deemed it unnecessary to review exclusion clause 21. CONCLUSIONWe note that the very wording of the various clauses is particularly important when analyzing insurance policies. In the case under review, the absence of the words “in whole or in part” resulted in a debate before the Court of Appeal.This case also raises the issue of knowledge by an insured of an illegal use of the premises when examining the exclusion. The Court of Appeal does not specifically deal with this issue in the case under review. However, the Superior Court, examining a similar exclusion, came to the conclusion that the use for criminal purposes by a third party cannot be used against an insured where the insured does not have specific control over such use for criminal purposes3. However, the clause examined in that decision did not provide that the premises had to be occupied by the insured, as was the case in the Union canadienne v. Houle decision. It will be interesting to see whether the Court of Appeal will eventually deal with this specific issue._________________________________________ 1 L’Union canadienne compagnie d’assurance v. Houle, 2013 QCCA 677. 2 EYB 2011-28493 (C.A.). 3 Lévesque v. Compagnie d’assurance Desjardins, 2013 QCCS 1552.

On March 1, 2013, the Court of Appeal rendered a judgment on the insurer's duty to defend and indemnify the insured in the area of commercial general liability insurance.1 It confirmed the decision of the trial judge which had held that the insurer has the duty to defend and indemnify,2 and ordered it to reimburse its insured for the amounts paid to settle the claim of a third party and the amounts incurred by the insured in defending itself against the action.On the one hand, the Court found that the general coverage of the policy was occurrence-based. However, an extension to the policy also gave the insured, a manufacturer, claims-based coverage for its errors and omissions. The Court therefore found that there was an ambiguity which enabled it to apply the contra proferentem rule set out in article 1432 of the Civil Code of Québec. The trial judge's interpretation of the contract in favour of the insured was therefore without error.On the other hand, the Court found that the insurer did not show that the allegations that were not covered by reason of exclusions in the policy itself could give rise to separate and quantifiable defence costs from those incurred in defending the allegations that were covered under the policy. Therefore, there was no reason to apply a percentage to distinguish between the amounts claimed that were covered and those that were not covered. The insurer was therefore bound to pay all of the amounts incurred by its insured for its defence.Finally, the Court noted that the insurer's duty to defend starts as soon as it is served with a formal demand and not upon the service of the originating process. It reiterated what was originaly decided by the Supreme Court of Canada in the case of Nichols v. American Home Assurance Co.,3 namely that the insurer must take up the insured's defence in a “timely manner”._________________________________________   1 Zurich, compagnie d’assurances v. Gestion Guy Lamarre inc., 2013 QCCA 367 (Justices Jacques A. Léger, Jacques J. Lévesque and Dominique Bélanger).  2 Laboratoires Confab Inc. v. Zurich, compagnie d’assurances, 2011 QCCS 3282 (Justice Yves Poirier).  3 Nichols c. American Home Assurance Co. [1990] 1 S.C.R 801.

Following the important judgment rendered by the Court of Appeal on August 2, 2012, the Court has ruled once again, on September 27, 2012, on the exclusions for gross fault with respect to professional liability insurance. In addition, the decision confirmed, as provided in the Civil Code, that an intentional fault is never covered.

On August 2, 2012, the Court of Appeal rendered a major decision on professional liability insurance . As a result of this ruling, insureds and insurers alike should review the wording of such policies, especially gross fault exclusions and the definition of "professional activities". The ruling is also noteworthy for its treatment of apportionment of liability between the professional and the client.