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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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  • Autonomous Air Vehicles : Are they at the gates of our cities?

    For many years now, we have been discussing the arrival of autonomous vehicles on Quebec roads. Thus, in April 2018, the government amended the Highway Safety Code1 to adapt it to the particularities of these new vehicles However, the automotive sector is not the only one being transformed by automation: the aeronautics industry is also undergoing profound changes, particularly with the introduction of autonomous air transport technologies in urban travel. Terminology There are many terms used in the autonomous air transport industry, including “autonomous flying car”, “unmanned air vehicle” and even “autonomous air taxi”. For its part, the International Civil Aviation Organization (ICAO) has proposed some terms that have been included in various official documents, including certain legislation2. These terms are as follows: Unmanned air vehicle: A power driven aircraft, other than a model aircraft that is designed to fly without a human operator on board; Unmanned air system: An unmanned aircraft and all of the associated support equipment, control station, data links, telemetry, communications and navigation equipment; Remote piloted aircraft system: A partially autonomous remotely piloted aircraft; Model aircraft (also called “drone”): A small aircraft, the total weight of which does not exceed 35 kg that is not designed to carry persons. As for Canadian legislation, it uses specific vocabulary and defines a remotely piloted aircraft system as a “a set of configurable elements consisting of a remotely piloted aircraft, its control station, the command and control links and any other system elements required during flight operation”, whereas a remotely piloted aircraft is defined as “a navigable aircraft, other than a balloon, rocket or kite, that is operated by a pilot who is not on board3”. Legislative Framework In accordance with Article 8 of the Convention on International Civil Aviation4, it is prohibited for unmanned aircraft to fly over the territory of a State without first obtaining the authorization of the State in question. In Canada, the standards governing civil aviation are found in the Aeronautics Act5 and its regulations. According to subsection 901.32 of the Canadian Aviation Regulations ((the “CARs”), “[n]o pilot shall operate an autonomous remotely piloted aircraft system or any other remotely piloted aircraft system for which they are unable to take immediate control of the aircraft6.” In Canada, the standards governing civil aviation are found in the Aeronautics Act5 and its regulations. According to subsection 901.32 of the Canadian Aviation Regulations ((the “CARs”), “[n]o pilot shall operate an autonomous remotely piloted aircraft system or any other remotely piloted aircraft system for which they are unable to take immediate control of the aircraft6.” Since the 2017 amendment of the CARs, it is now permitted to fly four (4) categories of aircraft ranging from “very small unmanned aircraft” to “larger unmanned aircraft7”, subject to certain legislative requirements: The use of unmanned aircraft weighing between 250 g and 25 kg is permitted upon passing a knowledge test or obtaining a pilot permit, if applicable8; To fly unmanned aircraft over 25 kg to transport passengers, it is mandatory to obtain an air operator certificate9. Ongoing projects Many projects developing unmanned aircraft are underway. The most high-profile and advanced projects are those of automotive, aeronautics and technology giants, including Airbus’s Vahana, Boeing’s NeXt program, Toyota’s SkyDrive and the Google-backed Kitty Hawk Cora10. The most advanced project appears to be UberAIR. In addition to actively working on developing such a vehicle with many partners like Bell and Thales Group, Uber’s project stands out by also focusing on all the marketing aspects thereof. The program is slated for launch in three cities as early as 202311. These cities are expected to host a test fleet of approximately fifty aircraft connecting five “skyports” in each city12. Challenges Despite the fact that technology seems to be advancing rapidly, many obstacles still remain to truly implement this means of transport in our cities, in particular the issue of the noise that these aircraft generate and the issues relative to their certification, costs and profitability, safety linked to their urban use, social acceptability and the establishment of the infrastructure necessary to operate them. In the event of an accident of an autonomous aerial vehicle, we can foresee that the manufacturers of such vehicles could be held liable, as could the subcontractors that are involved in manufacturing them, such as piloting software and flight computer manufacturers. We could therefore potentially be faced with complex litigation cases. Conclusion A study predicts that there will be about 15,000 air taxis by 2035 and that this industry will be worth more than $32 billion at that time13. In the context of climate change, sustainable transportation and in order to bear urban sprawl, these vehicles offer an interesting transit alternative that may very well change our daily habits. The flying car is finally at our doorsteps!   Highway Safety Code, CQLR, c C-24.2. Government of Canada, Office of the Privacy Commissioner of Canada, Drones in Canada, March 2013, at pp. 4-5 Canadian Aviation Regulations, SOR/96-433, s. 101.01. International Civil Aviation Organization (ICAO), Convention on International Civil Aviation (“Chicago Convention”), 7 December 1944, (1994) 15 U.N.T.S. 295. Aeronautics Act, RSC 1985, c. A-2. Canadian Aviation Regulations, SOR/96-433, s. 901.32. Government of Canada, Canada Gazette, Regulations Amending the Canadian Aviation Regulations (Unmanned Aircraft Systems) - Regulatory Impact Analysis Statement, July 15, 2017. Canadian Aviation Regulations, SOR/96-433, s. 901.64 et seq. Canadian Aviation Regulations, SOR/96-433, s. 700.01.1 et seq. Engineers Journal, The 13 engineers leading the way to flying car, May 29, 2018 Dallas, Los Angeles, and another city yet to be announced. Uber Elevate, Fast-Forwarding to a Future of On-Demand Urban Air Transportation, October 27, 2016, Porsche Consulting, “The Future of Vertical Mobility – Sizing the market for passenger, inspection, and goods services until 2035.” 2018

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  • Bill 141 and divided Co-ownerships: What changes in insurance for co-owners?

    On June 13, 2018, Bill 141, An Act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions (hereinafter referred to as the “Act”), received assent. This reform has a significant impact on certain laws governing the financial sector, amending the Civil Code of Québec (“C.C.Q.”) regarding the divided co-ownership of an immovable. While many of the legislative amendments will have to wait for the regulations to come into force, others took effect on December 13. Here is an overview of them. Insurance obligations of the syndicate of co-owners The provisions of section 6411 of the Act amend the manner in which the insurance obligations of the syndicate of co-owners under article 1073 of the C.C.Q. are regulated. Here is a brief description of these amendments: Deductible Insurance taken out by syndicates must have a reasonable deductible. It will be up to the legislator to define this concept in a future regulation. Risks covered The risks covered by operation of law will be prescribed by regulation. These will be deemed to be covered, unless the policy or a rider sets out, expressly and in clearly legible characters, which of those risks are excluded. Amount of coverage The amount of insurance must cover the reconstruction of the immovable in accordance with the standards, usage and good practice applicable at that time; the amount must be evaluated at least every five (5) years by a member of a professional order designated by government regulation. Insured persons The members of the syndicate’s board of directors and the manager as well as the chair and the secretary of the general meeting of the co-owners and the other persons responsible for seeing to its proper conduct must take out third person liability insurance. It should be noted that the manager may be a co-owner or a third party, in accordance with article 1085 C.C.Q. The insured status of a management company for the purposes of a syndicate's policy could have a significant impact on insurers' potential recoveries. Identification of improvements to private portions The Act provides that the syndicate must keep at the disposal of the co-owners a description of the private portions that is sufficiently precise to allow any improvements made by co-owners to be identified2. The identification of these improvements will in principle have the advantage of clearly defining what is covered by the co-ownership’s insurance and what is covered by the co-owner’s insurance. If not identifiable, the improvements would remain the responsibility of the syndicate. Creation of a self-insurance fund In addition to having to set up a contingency fund and an operating fund, the syndicate will have to set up a self-insurance fund that is liquid and available on short notice3. This fund will be used to pay the deductibles provided for in the insurance policies taken out by the syndicates and to compensate for damage to property in which the syndicates have an insurable interest, when the contingency fund or an insurance indemnity cannot provide for it. The amount of the self-insurance fund must be based on the amount of the deductible and must provide for an additional reasonable amount to cover the other expenses for which it is established. Insurance obligation Each co-owner must take out third party liability insurance, the amount of which will be determined by regulation4. Damage to property - Repair or claim Section 642 of the Act provides for the insertion of articles 1074.1 to 1074.3 after article 1074 C.C.Q.5. These articles have the following provisions: When a loss occurs which falls under the coverage provided for by a property insurance contract entered into by the syndicate and the syndicate decides not to avail itself of the insurance, it shall with dispatch see that the damage caused to the insured property is repaired. A syndicate that does not avail itself of insurance may not sue a co-owner, a person who is a member of a co-owner’s household, or a person in respect of whom the syndicate is required to enter into an insurance contract to cover the person’s liability for expenses incurred. On the other hand, it seems that the syndicate could benefit from a right of recourse in the event of a claim not involving insurance coverage. However, the sums incurred by the syndicate to pay the deductibles and make reparation for the injury caused to property in which the syndicate has an insurable interest may not be recovered from the co-owners otherwise than by their contribution for common expenses, subject to damages it can obtain from the co-owner bound to make reparation for the injury caused by the co-owner’s fault. This reservation making it possible to claim damages is open to interpretation. It would be possible to read these new articles and conclude that the syndicate retains rights of recourse against a co-owner for damage to property in which it has an insurable interest in the event that no insurance coverage is at stake and the co-owner's fault can be demonstrated. Or, perhaps the legislator intended to preserve the syndicate’s rights to claim damages other than the cost of repairing the damage caused to the property, as permitted by article 1728 C.C.Q. in respect of latent defects. These amendments and this notion of damages will undoubtedly need to be clarified by the courts. Finally, syndicate insurance will take precedence in the event that the same risks and property are covered by more than one insurance policy. Insurers’ subrogatory action The limitations on insurers' subrogatory rights in matters of divided co-ownership are now codified. The insurer of the syndicate, co-owner, person who is a member of a co-owner’s household, or person in respect of whom the syndicate is required to enter into an insurance contract to cover the person’s liability will be denied the right to bring a subrogatory action against one of these persons. The only possible exception to this rule applies in the case of bodily or moral injury or if the injury is due to an intentional or gross fault5. Conclusion Although many of the above-mentioned amendments remain dependent on the adoption of regulations, it remains important for the representatives of co-ownership syndicates to carry out the necessary checks to validate their insurance needs and obtain the appropriate advice from professionals in this sector. Insurers will also have to adjust their practices as a result, both when insurance is taken out and when managing claims.   These amendments will come into force 12 months after the publication of a regulation made under the 3rd paragraph of article 1073 C.C.Q. A first regulation must be published by June 13, 2020, at the latest. The provisions of section 638 come into force on different dates depending on the date of establishment of the co-ownerships concerned. See sections 653 and 814 para. 2 of the Bill 141. The provisions regarding the self-insurance fund will come into force 24 months after the publication of a regulation made under the 3rd paragraph of article 1072 C.C.Q. A first regulation must be published by June 13, 2020, at the latest. The entry into force of these provisions is conditional on the adoption of a regulation to be published no later than June 13, 2020. These provisions have been in effect since December 13, 2018.

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  • Care, Custody or Control Exclusion Clause in Insurance—The SCC’s Interpretation

    On October 19, 2018, the Supreme Court of Canada handed down its decision in 3091-5177 Québec inc. (Éconolodge Aéroport) v. Lombard General Insurance Company of Canada1, written by the Honourable Mr. Justice Clément Gascon, in an appeal of a Quebec Court of Appeal decision. It deals primarily with the application of the standard care, custody or control exclusion clause. Summary This decision helps clarify the application of a care, custody or control exclusion clause on the basis of the distinction between the notions of custody and of mere physical holding. Insurers must determine, on the basis of the particular facts of each claim, if custody was truly transferred to the insured before relying on the exclusion, while bearing in mind that the exclusion should not eliminate coverage in situations for which the application of such coverage is expected by or reasonable for the insured. The facts Éconolodge Aéroport (hereinafter “Éconolodge”) offered accommodations, parking and park and fly shuttle services near the Montréal—Pierre Elliot Trudeau International Airport. In winter, guests were required to give their car keys to Éconolodge representatives so that snow could be cleared from the parking lot. In the winter of 2005–2006, the vehicles of two Éconolodge guests were stolen from said parking lot. After having compensated their respective clients, the guests’ property insurers both instituted subrogatory recourse against Éconolodge to recover the compensation paid out, arguing that Éconolodge had not taken reasonable measures to prevent theft. In each case, Éconolodge’s insurer, Lombard General Insurance Company of Canada (hereinafter “Lombard”), was either sued directly or impleaded in warranty. Ultimately, the lawsuits for both cases of theft were joined. Lombard argued that it was not required to pay the claims, as per the exclusion, according to which the insurer was not liable for the loss of vehicles in Éconolodge’s custody and control. The exclusion read as follows: [Translation] This insurance does not apply to: (...) H. “Property damage” to: (...) (d) Personal property in your care, custody or control; Judicial history The lower courts all concluded that Éconolodge was liable for the theft of the two vehicles. In characterizing the contract between Éconolodge and its guests as a contract for services, they concluded that Éconolodge breached its obligation, as defined in article 2100 of the Civil Code of Québec, to act with prudence and diligence in the best interests of its guests. With regard to the care, custody or control exclusion clause, the Court of Québec concluded that it did not apply because Éconolodge had neither custody nor real control or care of the vehicles. In the Court’s view, the fact that the keys had been handed over to Éconolodge representatives in order to clear the parking lot of snow did not constitute a real transfer of custody of the vehicles. The Court of Appeal, for its part, was of the opinion that since the guests had handed over their keys to Éconolodge representatives, this meant that the vehicles were necessarily in Éconolodge’s custody. According to the Court, it was also incongruous to conclude that there was an obligation of prudence and diligence toward the vehicles without concluding there was a transfer of custody. The Court of Appeal thus found that the exclusion clause should apply. The SCC decision Like the lower courts, the Supreme Court concluded that Éconolodge was liable for the theft of the vehicles. However, it set aside the Quebec Court of Appeal’s conclusion that the exclusion clause relied on by Lombard was applicable, determining that the hotel operator did not have custody or control of the vehicles in the legal sense of these terms. It considered that in this case there was no ambiguity in the exclusion clause that needed to be resolved through an interpretation. For the purposes of applying this clause, the Court had to determine the effect of the guests handing over their keys on the notion of custody, given the distinction between custody and mere physical holding of property. Context determines whether a person or entity has custody or mere physical holding of property. In the aforementioned cases, the guests handed over their keys to the hotel operator for a specific reason—to facilitate parking lot snow removal. Moreover, guests were not required to hand over their keys in the summer. The Court determined that Éconolodge did not have real custody of the vehicles since it only had limited, clearly circumscribed power, namely to move the vehicles in the event of an accumulation of snow. In its analysis, the Court stated that the rationale behind the exclusion clause is to prevent the insurer from [Translation] “tying its obligation to pay compensation to uncertainties resulting from initiatives that may be taken by an insured [...] and have nothing to do with the kind of commercial activities engaged in by the insured and known to the insurer”. However, according to the Court, parking is an essential part of the range of services offered by Éconolodge, as it is a park and fly hotel. As Éconolodge’s insurer, Lombard knew the business model of the hotel operator and had knowingly issued the insurance policy. The Court was of the opinion that applying the exclusion would undercut the usefulness of the coverage for one of the insured’s three main activities. Finally, according to the Court, it would be absurd for the exclusion to be applicable dependent on the season. The Court concluded that Lombard must compensate Éconolodge for the theft of the cars. Conclusion The very contextual nature associated with characterizing the notion of custody requires a rigorous analysis of the facts surrounding the legal relationship between the insured and the lost or damaged property. In this analysis, insurers must attempt to determine if custody has truly been transferred to the insured or if it is a case of mere physical holding. Moreover, it should be noted that the application of the exclusion must not ultimately undercut or eliminate coverage in situations for which the application of such coverage is expected or reasonable for the insured.    3091-5177 Québec inc. (Éconolodge Aéroport) v. Lombard General Insurance Company of Canada, 2018 SCC 43.

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  • How subcontractors or materials supplier can use the surety bond contract

    That is what material suppliers want to know when general contractors with which they have contracted default on payment, particularly in bankruptcy cases. It is common practice for clients to require that the general contractor provide a surety bond to cover a significant breach of this nature. Generally speaking, the purpose of a surety bond contract to cover payment for labour and materials is to guarantee that the workers, suppliers and subcontractors used by the general contractor are paid.1 In order to benefit from the protection provided by the surety bond, a claimant must disclose its contract to the surety, usually within 60 days from the date on which the claimant commences work or on which the materials are delivered. When a claimant has not been paid or anticipates not being paid, it must send the surety a notice of claim within the time specified in the contract, which is generally 120 days from the date on which the services were completed or the materials were delivered. THE DECISION IN PANFAB On June 26, 2018, the Court of Appeal again examined the principle that requires disclosure to the surety in order to obtain payment for labour and materials, in Industries Panfab inc. v. Axa Assurances inc., 2018 QCCA 1066. In 2010, the Local Housing Bureau (the “Bureau”) retained Groupe Geyser inc. (“Geyser”) to construct three buildings in Longueuil with a total of 180 units. As stipulated in the construction contract, Geyser obtained a surety bond from Axa Insurance (“Axa”) to guarantee payment for labour and materials. Geyser subcontracted with Les Revêtements RMDL (“RMDL”) for the exterior cladding of the three buildings it was constructing. RMDL then signed a $330,000 contract with Industries Panfab inc. (“Panfab”) for it to supply metal sheathing boards. A few days before making its first delivery, Panfab informed Geyser, Axa and the Bureau of its contract to supply RMDL. A few months after the first delivery, RMDL ordered additional sheathing boards that were not part of RMDL’s initial order from Panfab. Panfab made an additional disclosure to the surety and upped the total cost of its contract. Panfab made two additional disclosures, in each of which it stated the new, higher total cost of its contract. Panfab’s total invoice for all of the materials came to $446,328.24, but it received only $321,121.84. Its claim was therefore for $125,206.40. RMDL declared bankruptcy in 2012 and, given the situation, Panfab sought to claim under the surety bond for payment for its materials. Decision at trial At trial, the Court found that Axa’s surety bond contract contained a stipulation for the benefit of third parties, based on which Panfab could characterize itself as a creditor under the contract and thus benefit from the guarantee provided by the surety bond. However, the Court concluded that there was only one contract between the parties and that the increase in the value of the contract had been disclosed more than 60 days after the first delivery of materials. In fact, it characterized the amount claimed as an overpayment and limited the amount that it ordered Geyser and Axa to pay to $54,830.66, since the effect of a judgment for the overpayment would have been to alter the terms of the surety bond contract and add to the respondents’ contractual obligations.2 Appeal In this specific case, the Court of Appeal found that the obligation of Geyser and Axa to jointly and severally pay the amount claimed for the materials to be used in the construction arose at the point when Panfab characterized itself as a creditor by making its first disclosure. The Court of Appeal held that the surety bond contract did not require that the value of the contract for the supply of materials be disclosed. The mandatory information to be provided was the type of work, the nature of the contract, and the name of the subcontractor. Panfab disclosed its contract with RMDL, the subcontractor, within the 60 days allowed and thus complied with the time requirements. The obligation to pay Panfab arose at that point. Given that the surety bond contract did not require that the value of the contract be stated in the notice of disclosure, the Court was of the opinion that Panfab had demonstrated good faith and transparency in informing Geyser and Axa of the changes to the value of its contract with RMDL, by providing amended notices of disclosure. The claim could therefore not be limited on the ground that Panfab had stated the value of its contract in its notice of disclosure, when there was nothing that required it to do so. The Court of Appeal therefore reiterated the principle that there is only one contract and thus only one notice of disclosure, notwithstanding the fact that Panfab sent the surety amended notices.3 An order for reimbursement for the full amount to be paid does not alter the terms of the surety bond contract. The Court therefore concluded that the trial judge had erred by holding that the amended notices of disclosure sent by Panfab were time-barred and were necessary in order for the total claim to be allowed. The Court of Appeal took the opportunity to reiterate the scope of the duty to inform on the part of a materials supplier or subcontractor. Geyser submitted that Panfab had breached its duty to inform and that its breach was the reason for the shortfall in the amounts withheld for paying all of the subcontractors and suppliers. The Court did not accept that argument; it relied on Banque canadienne nationale v. Soucisse (1981),4 which set out the foundation for a creditor’s duty to inform, and on article 2345 C.C.Q., reiterating that a creditor is required to provide any useful information to the surety at the request of the surety. In this case, Geyser and Axa had never asked Panfab for additional information under that article. To summarize, Panfab clarifies the already settled law regarding notices of disclosure to sureties, as stated in Fireman’s Fund (1989)5 and Tapis Ouellet inc. (1991), in particular: when a contract for the supply of materials is shown to exist between the parties and the materials have been incorporated into a construction project, the subcontractor may claim the amounts owed under the surety bond contract after sending a notice of disclosure that meets the requirements set out in that contract. It must be kept in mind that any surety bond contract may contain specific clauses and that reference must be made to those clauses. That is why the Court in Panfab concluded that the information relating to the value of the contract was not mandatory in the notice to the surety, since, in that case, the surety bond contract did not require that the value of the contract be included in the notice of disclosure. Vigilance is therefore the order of the day when it comes to the terms of surety bond contracts.   MONDOUX, Hélène, François BEAUCHAMP, “Les cautionnements de contrats de construction” in Collection de droits 2017-2018, École du Barreau du Québec, vol. 7, Contrats, sûretés, publicité des droits et droit international privé, Cowansville, Éditions Yvon Blais, 2017, p. 59. Industries Panfab inc. v. Axa Assurances inc., 2018 QCCA 1066, para. 14. Ibid. para. 22. National Bank of Canada v. Soucisse, [1981] 2 S.C.R. 339. Fireman’s Fund du Canada, cie d’assurances v. Frenette et frères Itée, 1989 CanLII 815 (QC CA).

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  • Wellington-Type Motion And Reserve Of Rights Letter

    On July 9, 2018, the Superior Court once again examined the principles applicable to Wellington-type motions in connection with a matter opposing two contractors against their liability insurers in a legal proceeding initiated by the Société des traversiers du Québec (hereafter “STQ”). The contractors were, among other things challenging the application of some exclusions, alleging that the denunciation of said exclusions as ground to deny coverage were raised too late. The Facts During a storm, an STQ platform on which the contractors were working was damaged. The sheet pilings provided by the STQ and installed by the contractors detached from the platform and fell into the river. Initially, the adjusters mandated by the insurers denied coverage by referring to the exclusions concerning damage to the property owned, leased or occupied by the contractors. In its proceedings, STQ was summarily alleging the contractors' faulty work and non-compliance of the work with the welding plans and specifications. The contractors filed a Wellington-type motion in order to force their insurers to take up their defence. A few days afterwards, the STQ modified its proceedings to specify the defects that were affecting the contractors’ work. It also filed two expert reports in support of its allegations. It was only during the contestation of the Wellington-type motion that the insurers finally raised the application of the exclusions concerning the damages to a part of the building on which the contractors were called to work on because of faulty work.  The decision From the outset, the Court reiterates that an insurer owes a defense to an insured when the allegations of the proceedings entail a mere possibility of coverage under the policy. At this stage, the judge does not have to inquire as to whether the insured’s responsibility will be merited, but must simply determine whether there is a possibility of coverage. In light of the allegations of STQ’s Amended application, the Court concludes that the exclusions initially raised by the insurance adjusters did not apply, since the contractors were never the owners, lessees or even borrowers of the sheet pilings. As for the exclusions concerning the contractors' faulty work, the Court concludes to their application to the extent that the STQ allegations are considered as proven. The contactors also argued that these exclusions were submitted late. Indeed, it is acknowledged that an insurer cannot invoke an exclusion which is submitted late or kept in reserve in the event of the failure of another means of defence.1 According to the contractors, the insurers should not have been allowed to invoke the exclusions relating to faulty work at the stage when the Wellington-type motion was already filed, without having previously raised the application of said exclusions. In response, the insurers argued that, while the STQ’s initial Application included general allegations regarding the contractors' faulty work, they were justified in raising these new exclusions after the modification made by STQ which crystallized and clarified the complaints made against the contractors. Incidentally, the insurers emphasized that they had also reserved their rights to invoke any other exception of the insurance policy in their initial coverage letter. In the end, the Court sided with the insurers and rejected the Wellington-type motion filed by the contractors. The Court, “considering the development of the allegations in the Application” and the recent addition of the allegations clarifying and crystallizing the complaints, concluded that the insurers were not in default of having raised in a timely manner the exclusions on which the denial was now based. Conclusion Wellington-type motions continue to be a hot topic. The importance of the reservation of rights and denial letters should also be reiterated. As indicated by the Court, there may be instances where developments in the allegations made against an insured will allow for the application of exclusions heretofore not invoked. Nevertheless, it remains that any potentially applicable exclusion must be invoked as soon as possible and it is also suitable to include, in the reservation of rights letters and the coverage letters, the right to invoke any other condition, limitation and exclusions set out in the policy should new developments or facts be brought to the attention of the insurer.   The Continental Insurance Company v. Tracy Plate Shop Inc., 1987 CanLII 211 (QCCA)

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  • First pilot project on the use of autonomous vehicles comes into effect

    The Autonomous Bus and Minibus Pilot Project 1 (the “Pilot Project”) came into effect in Quebec on August 16, 2018. The project provides guidelines for the regulated driving of the first autonomous vehicles on Quebec’s roads. Driving autonomous vehicles in quebec An autonomous vehicle is defined by the new Highway Safety Code as “a road vehicle equipped with an automated driving system that can operate a vehicle at driving automation level 3, 4 or 5 of the SAE International’s Standard J3016”.2 Driving autonomous vehicles is currently prohibited in Quebec other than in accordance with a pilot project.3 Eligibility requirements To be authorized by the Minister under the Pilot Project, a manufacturer, distributor or operator of autonomous vehicles (referred to by the Pilot Project as the “promoter”) must submit certain information to the Minister of Transport and to the Société de l’assurance automobile du Québec (“SAAQ”) concerning their experimental project, including, in particular: -      an application specifying their project and the objectives pursued; -      a description of the vehicles that will be used; -      the area in which the project will be implemented; and -      the safety measures proposed.4 Insurance and security Under the new Highway Safety Code, the Pilot Project provides that the promoter of a project must carry a minimum of $1,000,000 in liability insurance to guarantee compensation for material harm.5 In the event of an accident involving an autonomous vehicle operated under an experimental project, the SAAQ may recover the compensation it will be required to pay under the Automobile Insurance Act6 from the manufacturer or distributor of the autonomous vehicle involved in the accident. In that case, the operator of a project will have the obligation to reimburse the SAAQ for the compensation paid.7 Security must also be provided to the SAAQ to guarantee reimbursement, in an amount that will be determined by the Minister on a case by case basis, depending on the project. A manufacturer or distributor from which the SAAQ has made a claim for compensation paid may refuse to make reimbursement or request a reduction of the amount claimed in two situations: (1)  by proving the fault of the victim or of a third person; or (2)  in the case of superior force.8 Experimental project The entry into effect of the Pilot Project has authorized a first experimental project in Quebec, sponsored by Keolis Canada Innovation, s.e.c.9 The purpose of the project is to put Navya autonomous minibuses into service that are capable of transporting up to 15 passengers, travelling on a closed circuit in Candiac. The vehicles will travel at a maximum speed of 25 km/h and a driver will be on board to take control of the vehicle, if necessary.10 We can count on seeing a number of other projects in the future, now that there is a legislative framework allowing them.   Autonomous Bus and Minibus Pilot Project, (Highway Safety Code, CQLR chapter C-24.2, s. 633.1).[ Pilot Project] Highway Safety Code, CQLR chapter C-24.2, s. 4. Highway Safety Code, CQLR chapter C-24.2, s. 492.8; except for vehicles at level 3, which may be driven if their sale is authorized in Canada. Pilot Project, s. 4. Pilot Project, s. 20. Automobile Insurance Act, CQLR c. A-25. Pilot Project, s. 21. Pilot Project, s. 22. Pilot Project, s. 26. “Une navette à L’essaie pour un an à Candiac”, La Presse, August 11, 2018, Montréal.    

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  • Increased risk: the importance of questions to policyholders

    On 23 January 2018, in a case in which Marcelin Fortier (hereinafter the “applicant”) sued his insurer, the Superior Court rendered a decision1 whereby it reiterates the principles applicable to the notion of increased risk in insurance, and insisted on the importance of the questions asked by insurers at the time an insurance contract is purchased.  On 8 January 2015, the applicant’s home was seriously damaged by fire. The applicant thereafter turned to his insurer, seeking compensation for the damages resulting from the fire. The insurer denied coverage and asked that the contract be declared void ab initio, arguing that the applicant had failed to disclose the fact that his ex-wife, who has a serious criminal record, had returned to live in his house since October 2011. The insurer argued that this constituted an increased risk, sufficient to invalidate the insurance contract. For starters, we point out that an insured person has the obligation to disclose to his or her insurer any increased risk that may change the insurance contract that was signed initially, such obligation being limited to disclosing increased risks resulting from the insured party’s actions2. Once that increased risk is disclosed, an insurer can choose to do nothing, to increase the premium, or to terminate the contract from the onset of such increased risk. Consequently, an insured’s failure to disclose an increased risk may lead to a proportional reduction in compensation, or to the nullity of the contract in the event of a claim. In the latter case, the insurer needs to prove that a prudent insurer in the same circumstances would have terminated the contract if it had been warned in due course about such increased risk, or else that the insured has acted in bad faith. In this case, the insurer claimed that, had it been informed about the spouses resuming their life together in the house, it would have terminated the contract, arguing that the criminal records of policyholders are of the utmost importance in damage insurance. Here, the insurer argued that this justified the termination of the contract. For his part, the applicant argued that the insurer had never asked him about the criminal records of the members of his household, not even at the time of the initial declaration of risk. In this context, he did not deem it necessary to disclose to his insurer that he had resumed cohabiting with a person with a criminal record. In its decision, the Court pointed out that, in order to establish whether an increased risk entails consequences for the indemnification, a two steps test needs to be performed. First, one has to establish whether the allegedly increased risk is such as to influence a prudent insurer in its decision to accept it. Then, the Court needs to assess whether the insured has acted as a normally provident insured. The Court mentioned that the criminal record of a third party to the insurance contract cannot have the same impact as that of the insured party, basing this on the fact that such a third party would not have any financial benefit to gain if he or she were to deliberately damage the insured property. In the case at hand, the Court noted that the insurer had never asked the applicant any specific questions about the criminal records of the members of his household. The Court therefore concluded that the insurer’s behaviour did not demonstrate that it conferred the “utmost importance” to the arrival of a resident with a criminal record during the contract period, thus triggering a declaration obligation in mid-contract. The Court emphasized that insurers need to take the necessary measures to make sure the persons they insure are able to understand the importance the insurer gives to a specific risk, in particular by asking them specific questions. Ultimately, the Court rejected the insurer’s defence, concluding that the applicant had acted as a normally prudent insured person by not disclosing the resumption of his cohabitation with his ex-wife, despite the fact that she has a serious criminal record. Moreover, the Court said it was convinced that many homeowners would not have the instinct to inform their insurers in mid-contract if a member of their household was found guilty of a crime connected with the insured risk, thereby limiting the residual obligation of policyholders to declare all the circumstances known to them that are such as to materially influence an insurer’s risk assessment. This decision was appealed on 26 February of this year. In the meantime, this decision urges insurers to ask more questions of those they insure, and to take a more proactive approach to clearly establish what could constitute an increased risk for them. However, we point out that insurers should take care not to ask excessively precise questions, so as to prevent limiting or even canceling out a policyholder’s residual duty to inform with regard to the subject of the question.   Fortier c. SSQ, Société d’Assurances Générales Inc., 2018 QCSC 1495. Art. 2466 C.C.Q.  

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  • Autonomous cars in Quebec: the legal uncertainty is clarified at last

    With the enactment on April 17th 2018 of Bill 165, An Act to amend the Highway Safety Code and other provisions1, the driving of autonomous vehicles in Quebec is finally regulated, although a number of uncertainties remain. Indeed, the driving of autonomous vehicles of automation level 3, such as Tesla’s model X equipped with an improved guidance system, is now permitted in Quebec. While driving vehicles of levels 4 and 5 is not allowed for the moment, we can anticipate that it will be permitted as part of a pilot project implemented by the government, since it has expressed its desire for Quebec to become a recognized leader in certain segments of the electric and smart vehicle industry.2 As a reminder, there are six levels of automation for cars: Level 0 – no automation; Level 1 – driver assistance; Level 2 – partial automation, which provides automatic assistance and acceleration/braking functions but requires that the human driver retain control over all dynamic driving tasks; Level 3 – conditional automation, in which dynamic driving tasks are performed by the control system but the human driver must remain available at all times; Level 4 – high automation, when a vehicle’s control system provides total control of all driving tasks, even in critical safety situations; and Level 5 – full automation, when a vehicle performs all driving tasks alone, without the possibility of human intervention. THE “OLD” HIGHWAY SAFETY CODE Until recently, the Highway Safety Code3 (hereinafter the “Code”) contained no definition of an autonomous vehicle. It defined a road vehicle as “a motor vehicle that can be driven on a highway” and a motor vehicle as “a motorized road vehicle primarily adapted for the transportation of persons or property”.4 Those broad definitions, and the fact that there was no specific definition of an autonomous vehicle, created a legal uncertainty. Were autonomous vehicles allowed on roads in Quebec? What would happen in the event of an accident involving an autonomous vehicle? The Transportation Ministry recognized this legal vagueness and introduced amendments to the Code relating to autonomous vehicles, among other things. THE “NEW” HIGHWAY SAFETY CODE The Code now defines an autonomous vehicle as “a road vehicle equipped with an automated driving system that can operate a vehicle at driving automation level 3, 4 or 5 of the SAE International’s Standard J3016”.5 ). The Code prohibits driving autonomous vehicles on roads in Quebec, other than vehicles at automation level 3, when they are authorized for sale in Canada.6 However, the Ministry may implement pilot projects relating to autonomous vehicles, “to study, test or innovate”.7 Pilot projects will last for five years and may also “provide for an exemption from the insurance contribution associated with the authorization to operate a vehicle and set the minimum required amount of liability insurance guaranteeing compensation for property damage caused by an automobile”8. On the question of liability in the event of an accident involving an autonomous vehicle, a pilot project may “require the manufacturer or distributor to reimburse the Société [de l’assurance automobile du Québec] for compensation that it will be required to pay in the event of an automobile accident”9. IMPLICATIONS AND UNCERTAINTIES While Transportation Minister André Fortin maintains that Bill 165 is forward-looking and is confident that it will further improve Quebec’s road safety record,10 uncertainties still surround the conditions that will be placed on projects involving cars of automation levels 4 and 5. Also, the obligations of the drivers and manufacturers of autonomous vehicles towards liability insurance will have to be clarified. A more specific framework for autonomous vehicle manufacturers’ liability will necessarily have to be put in place. The Quebec government will have no choice but to keep doubling its efforts to ensure that pilot projects are proposed if it is to catch up to Ontario, which has had an autonomous vehicle pilot project in place since 2016.11   Bill 165, An Act to amend the Highway Safety Code and other provisions; The sanction date of the Bill and the entry into force of the new dispositions are not yet known. Gouvernement du Québec, ministère de l’Économie, de la Science et de l’Innovation, “Le gouvernement du Québec soutient la Grappe industrielle des véhicules électriques et intelligents”, Montréal, April 13, 2018, online. Highway Safety Code, RLRQ, c C-24.2. Highway Safety Code, RLRQ, c C-24.2, art 4. Bill 165, An Act to amend the Highway Safety Code and other provisions, s. 4. Bill 165, An Act to amend the Highway Safety Code and other provisions, s. 125 (addition of section 492.8 to the Highway Safety Code). Bill 165, An Act to amend the Highway Safety Code and other provisions, s. 164 (amendment of section 633.1 of the Highway Safety Code). Bill 165, An Act to amend the Highway Safety Code and other provisions, s. 164 (amendment of section 633.1 of the Highway Safety Code). Bill 165, An Act to amend the Highway Safety Code and other provisions, s. 164 (amendment of section 633.1 of the Highway Safety Code). Journal des débats of the National Assembly, Vol. 44, No. 327, April 17, 2018, online.  Pilot Project - Automated Vehicles, O Reg 306/15.  

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  • Civil liability and personal injury: A harsh decision for a winter sports centre

    The Court of Québec released an interesting judgment in December in a case involving civil liability and personal injury.1 On February 23, 2013, Plaintiff, Ms. Bourgault, went to Village Vacances Valcartier (“VVV”) to take part in a snow rafting activity. During a descent, she was twice thrown toward the rear of the inflatable boat. The violent impacts caused her to break a vertebra. She sued VVV for damages arising out of the incident. On that day, 6,660 customers slid down the VVV slopes. The conditions were described as perfect, and the trails well maintained. The evidence also was that only two accidents were reported out of the 168,312 people who went to the centre during the 2012-2013 winter season: one on the same day as the plaintiff and the other the following day. Both accidents occurred on the same trail. The terms and conditions printed on the back of the ticket stated that the customer agreed to abide by VVV’s rules of conduct and acknowledged and accepted the risks inherent in sliding, and assumed full liability for any property or bodily damage. Plaintiff had not noticed or seen the signs and instructions.2 She did know that snow rafting involved going over humps and that the route taken might be rougher3 than others. In its analysis, the Court underlined the principles that apply here:4 The victim must prove fault on the part of the defendant and its employees in the operation of the centre, in particular regarding the safety of the users, on a balance of probabilities. The victim must also prove the nature of her damages and the causation between the damages and the fault; The mere occurrence of an accident in the course of an activity does not automatically result in a reversal of the burden of proof; The operator of the centre has a duty of supervision and vigilance, which is an obligation of means. It must act reasonably to ensure customers’ safety and avoid foreseeable accidents. Its trails must have no traps, taking into account reasonable foreseeability; The operator of the centre is not the insurer of customers who suffer an accident while engaging in the recreational or sports activity in question; It is considered to be tacit acceptance of the risks inherent in engaging in the recreational or sports activity in question; However, acceptance of the risks does not extend to exceptional or unreasonable risks that are not foreseeable or that go beyond what is inherent in engaging in the recreational or sports activity; To conclude that there was acceptance of the risks, there must have been a clear risk, express or implied knowledge of the risk, and sufficient information regarding the activity and its inherent risks to enable the participant to make a free and informed choice, and it must be possible to identify the acceptance (formal or tacit) of the risk by the victim. In the case of exacerbated risk, or if an unforeseen risk materializes, the initial acceptance cannot be a defence; Notwithstanding the theory of the acceptance of risks, the operator may be liable if it is established that it did not act diligently and exposed the user to undue risks; The extent of the acceptance of the risks is related to the user’s level of experience and skill and to all of the circumstances and specific warnings given to the user, by whatever means may have been used (signs, etc.). The Court also reiterated the principles relating to the rules governing presumptions of fact, which must be serious, specific and consistent, based on the facts introduced into evidence.5 The Court acknowledged that serious prima facie evidence was presented by VVV regarding the adequacy of the measures in place to ensure the safety of the participants and for the maintenance and supervision of the trails, both for the 2012-2013 winter seasons and for the day of the accident.6 In the opinion of the Court, however, there were certain details that clouded the picture, and it was of the view that the safety instructions were virtually non-existent or vague. The Court also stated that it was troubled by that fact that the only other two accidents recorded took place on the same trail, within a short period of time, in spite of the alleged maintenance.7 It further noted the inconsistency between the plaintiff’s and defendant’s evidence regarding the exact location of the humps that were the source of the accident. The testimony referred to violent bouncing beyond the experience that VVV sought to provide its customers. The Court concluded that there was plainly an irregularity on the trail in question.8 As for the reason that might explain the irregularity, the Court agreed that it was a riddle wrapped in a mystery inside an enigma.9 However, it concluded that the presumptions were sufficient to establish that the raft hit bumps twice, the passengers came off their seats, Plaintiff lost hold of her cord, and she fell into the bottom of the boat and was injured. In the opinion of the Court, the boat should not have lifted off the ground and that is probably a result of a flaw in the design of the humps on the slope.10 With respect to the acceptance of the risks and the limitation of liability, in particular regarding what was printed on the back of the ticket, the Court stated that it could not be argued that Plaintiff had accepted risks of every nature related to the activity. In the opinion of the Court, if the safety instructions had mentioned that violent impacts would take place that could cause injuries, the Plaintiff would not have gone down the slope.11 It also held that Plaintiff had released VVV from liability in relation to the accident. The Court referred to section 1474 of the C.C.Q., which prohibits such exclusion or limitation of liability for bodily or moral injury.12 Finally, the Court made a distinction between activities where the participant is in motion and chooses his or her own direction (for example, downhill skiing or riding on inner tubes, flying saucers or sleds) and activities like snow rafting that do not call for any special ability or require a route to be chosen, in which the participant is virtually immobile.13 In that case, the operator’s obligation of means is more stringent when it comes to the configuration and maintenance of the site. The case has not been appealed. It will certainly be a precedent to be considered for personal injury cases that involve recreational and sports activities.   Bourgault c. Village vacances Valcartier inc., 2017 QCCQ 16300. The other witnesses also had not: paras. 20, 34, 41, and 51 of the decision. Par. 45 of the decision. Par. 99 of the decision. Par. 100-101 of the decision. Par. 103-104 of the decision. Par. 111 of the decision. Par. 107-122 of the decision. Par. 123 of the decision.  Par. 124-125 of the decision. Par. 138 à 140 of the decision. Par. 127-129 of the decision. Par. 142 of the decision.

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