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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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  • Builders’ Risk Insurance: Interpreting the Usual Faulty Workmanship and “LEG” Exclusions in connection with Ledcor and Acciona

    Ledcor The issue in Ledcor1 was whether the builder’s risk policy taken out by the contractor that was contractually responsible for cleaning the windows of a building, covered damage to the windows caused by its poor cleaning work. The financial impact was significant since the cost of re-doing the cleaning was $45,000, while the cost of replacing the damaged windows amounted to $2.5 million. The Supreme Court decided that only the cost of re-doing the cleaning was excluded and so replacement of the windows, which was damage resulting from the faulty workmanship, was covered. The decision of the Supreme Court of Canada in Ledcor has clarified the interpretation of the faulty workmanship exclusion in builder’s risk insurance cases by limiting it to defective work and connecting the scope of the exclusion to the contractual obligations of the contractor responsible for the faulty workmanship (our Lavery bulletin on this issue can be accessed by clicking here). We would start by pointing out that the wording of the faulty workmanship exclusion in Ledcor2 is similar to the usual wording for this type of exclusion in builder’s risk policies. The decision in Ledcor is a landmark ruling. The approach it suggests, of examining the obligations set out in the contract in order to draw the line between faulty workmanship and damage caused by the faulty workmanship, is easy to apply in cases where the contract has only one component, as was the case in Ledcor. However, in cases where a faulty contractor’s contract has multiple severable components and the defective work relates to only one of them, applying the contract-based approach presents problems. In that situation, considering strictly the contract-based approach, the costs associated with the components that were properly performed would be excluded. However, that result would run counter to the objective of builder’s risk insurance policies, which are intended to provide broad coverage in order to avoid construction projects being paralyzed by disputes. LEG Exclusions LEG exclusions could well offer a solution in the case of contracts consisting of multiple severable components. These exclusions are worded in precise terms and have a clearly defined scope. LEG exclusions are clauses developed in the 1990s by the London Engineering Group (“LEG”). They are found in some builder’s risk insurance policies, and are widely used in Europe. They are less common in Canada, particularly on major projects, and are rarely used in the United States. LEG exclusion clauses can be briefly described as follows: Exclusion LEG 1/96 - “Outright Defects Exclusion”: excludes all loss or damage due to defects of workmanship, materials or design. Exclusion LEG 2/96 - “Consequences Defects Exclusion”: excludes only costs inherent in the proper performance of the work and rendered necessary to rectify a fault or defect discovered immediately prior to the damage occurring. Exclusion LEG 3/96 (revised in 06) - “Improvement Defects Exclusion”: excludes only costs incurred to improve the original design, material or performance of the work beyond the damage that occurred. These three exclusion clauses thus represent three graduated levels of coverage, with a premium that corresponds to the level of coverage that the parties wish to take out. Acciona and the recommendations of the IBC The decision of the British Columbia Court of Appeal in Acciona3 interpreted exclusion LEG 2/96 in a builder’s risk insurance policy for the first time in Canada. Also called “Consequences Defects Exclusion”, that is the exclusion that deals with damage resulting from faulty workmanship. IBC endorsement 4047, which has been recommended since 2010 to improve IBC 4042 in connection with builder’s risk insurance, essentially adopts the wording of exclusion LEG 2/96. The change between form 4042 (the wording of which was similar to the exclusion in Ledcor) and endorsement 4047 (the wording of which is similar to exclusion LEG 2/96 in Acciona) lies in the addition of a definition of the expression “resulting damage”. Like the text of exclusion LEG 2/96, that definition refers specifically to costs incurred to rectify the fault or defect if it had been discovered immediately before the damage occurred and if the damage had been rectified at that time. Exclusion LEG 2/96 underlies severability. This exclusion proposes a method by which the faulty workmanship, which is excluded, on the one hand, and the damage, which is covered, on the other hand, can be delineated. Only those costs that are inherent in the proper performance of the work to rectify the faults or the defect before the damage occurs will be covered by the exclusion. The decision in Acciona4 in connection with the application of exclusion LEG 2/96 proposes that the defect and the resulting damages be delineated as follows: "… the excluded costs are only those costs that would have remedied or rectified the defect immediately before any consequential or resulting damage occurred, but the exclusion does not extend to exclude the cost of rectifying or replacing the damaged property itself; the excluded costs crystallize immediately prior to the damage occurring and are thus limited to those costs that would have prevented the damage from happening." This approach implies that the exclusion crystallizes immediately before the damage but does not include the damage, which will, on the other hand, be covered5. To the extent that the builder’s risk insurance market wants to adopt it, endorsement 4047 suggested by the IBC, like the text of exclusion LEG 2/96, makes it possible to delineate the faulty workmanship and consequential damage, precisely, at a point in time. The Ledcor and Acciona approaches will help to reduce builder’s risk insurance litigation The decisions of the Supreme Court in Ledcor and of the British Columbia Court of Appeal in Acciona are key decisions in respect of questions of coverage that arise under builder’s risk policies. The wording of the exclusions they analyzed differs significantly and the two approaches they suggest are different. However, these two decisions provide a clear and specific methodology for delineating the scope of the exclusions. The approach based on the obligations set out in the contract suggested by the Supreme Court in Ledcor, like the approach based on severability suggested in Acciona, will make it possible to easily resolve some problems in applying faulty workmanship exclusion clauses in builder’s risk policies. These approaches will also reduce the volume of litigation. If you have questions or would like to know whether the methods proposed in Ledcor and Accionaapply to your case, our specialists in construction insurance will be able to help you.   Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Company et al. [2016]¸2 SCR 23. This wording in Ledcor is similar to the wording suggested by the IBC in drafting a similar exclusion in form 4042 (builder’s risk insurance) 1998. Acciona Infrastructure Canada Inc. v. Allianz Global Risks US Insurance Company, 2015 BCCA 347. This decision of the British Columbia Court of Appeal is final; the case had been referred back by the SCC after the decision in Ledcorand was withdrawn before the hearing scheduled for June 2017. Supra, note 5. On this point, see Sharon C. Vogel, Journal of the Canadian College of Construction Lawyers 2016, The Evolution of Builder’s Risk Insurance in Canada: A Brave New World for Resulting Damages?

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  • Standing Senate Committee of Canada's Transport and Communications issues report on driving of smart vehicles

    Introduction In January 2018, the Senate's Standing Committee on Transport and Communications (hereinafter the "Committee"), chaired by the Hon. David Tkachuk, published a report on the impact of automated vehicles in the country at the behest of the Minister of Transport of Canada. The first generation of these vehicles are already travelling on our roads, and their increased use will probably have far-reaching social consequences, such as a reduction in the number of accidents 1 and greater transport freedom for the elderly, but also, potentially, the loss of jobs in the country. The Committee issued sixteen (16) recommendations relating to smart vehicles2, in particular on these vehicles' cybersecurity and insurance coverage, urging the government to act now, since "technology will overtake regulations". Automobile manufacturers seem to hold the same opinion. Shawn Stephens, Planning and Strategy Director at BMW Canada, says that "the technology is ready. The manufacturers are ready. It is the laws and the government that are slowing us down [our translation]"3. Plug-in vehicles and automated vehicles Plug-in vehicles are described by the Committee as relying on to two kinds of technologies: the ones designed for “infoentertainement” and the ones relating to communication between vehicles.  These plug-in vehicles can therefore receive information on approaching vehicles, for example on their speed, relevant routes, and on the services available along the selected route. For their part, automated vehicles make different degrees of autonomous driving possible by relying on various technologies. The automation of these vehicles is classified between levels 0 and 5, that is, from no automation at all to complete automation, which refers to a vehicle that is entirely self-driven, without any possibility of human input.4 The smart cars designation encompasses both these categories. Cybersecurity The Committee recommends that a best practices guide be adopted with regard to cybersecurity. Indeed, the threat of cyberattacks targeting smart cars has been worrying the automobile industry for some years, to such an extent that the Automotive Information Sharing and Analysis Centre was established in July 2015, to allow various manufacturers to share their knowledge and cooperate on this topic. A cyberattack against a smart vehicle could target the integrity of its electronic data, and therefore the safety of its passengers, as well as the personal information of the drivers obtained from the vehicle. As a matter of fact, a recommendation for drafting a bill aimed at protecting the personal data of smart vehicles' users was also issued.  Insurance Considering the real threat of cyberattacks targeting smart vehicles, manufacturers must to take out an insurance policy covering cyberattacks. On another note, KPMG deems that, as a result of the use of automated vehicles, accidents will drop by 35% to 40%, while repair costs will increase by 25% to 30%5. So, one can reasonably expect an impact on drivers' insurance premiums. Moreover, it is possible that the liability in an accident involving an automated vehicle be transferred from the vehicle's driver to its manufacturer by means of amendments to the Automobile Insurance Act6, or of new laws specifically relating to the driving of automated vehicles. These changes could have significant consequences on the various laws regulating automobile insurance in the country7. The Committee therefore issued the recommendation for Transport Canada to oversee the impact of plug-in and automated vehicles on the automobile insurance industry.  Some initiatives and challenges The Motor Vehicle Test Centre in Blainville is currently working on establishing whether or not smart vehicles comply with current Canadian security standards. We have also learned from the Committee's Report that the Canadian Regulatory Cooperation Council is currently working with the United States on the various issues connected to plug-in and automated vehicles. Despite the numerous initiatives on record, so far only Ontario has introduced legislation specifically regulating the use of automated vehicles on the province's roads. 8. Québec will have to go down this path in order to fill the current legal vacuum9.  Conclusion As discussed in our bulletin of February 201710, the growing number of automated vehicles on the roads of Québec cannot be taken lightly. A legislative framework specifically providing for this kind of vehicle is of the essence when we consider that, by some projections, a quarter of the total worldwide vehicles will be defined as smart by 203511. Plug-in vehicles are already traveling on the roads of Québec, as are various levels of automated vehicles. It is therefore vital for all levels of government to catch up with these technologies. Regulating the driving of smart vehicles is a hot topic pertaining to the development of artificial intelligence. As such, it needs to be followed closely.   It is estimated that up to 94% of road accidents are caused by human error, see Standing Senate Committee on Transport and Communications, "Driving Change: Technology and the Future of the Automated Vehicle", Ottawa, January 2018, page 29. Standing Senate Committee on Transport and Communications, "Driving Change: Technology and the Future of the Automated Vehicle", Ottawa, January 2018. MCKENNA, Alain, La Presse, « Véhicules autonomes : « Ce sont les lois et le gouvernement qui nous freinent », Montréal, 1 February 2018, online:  http://auto.lapresse.ca/technologies/201802/01/01-5152247-vehicules-autonomes-ce-sont-les-lois-et-le-gouvernement-qui-nous-freinent.php. See GAGNÉ, Léonie, Need to Know, Bulletin Lavery, de Billy, “Autonomous vehicles in Québec: unanswered questions” Montreal, February 2017. Standing Senate Committee on Transport and Communications, "Driving Change: Technology and the Future of the Automated Vehicle", Ottawa, January 2018, page 65. Automobile Insurance Act of Québec, CQLR c. A-25.Automobile insurance falls under provincial jurisdiction. Pilot Project - Automated Vehicles, O Reg 306/15. The Government of Québec is currently assessing Bill 165, which aims at, among other things, amending the Highway Safety Code and regulating the driving of autonomous vehicles. Supra, note 4. Boston Consulting Group, (2016), Autonomous Vehicle Adoption Study.

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  • Securities and class actions: screening authorizations

    Anyone who wants to bring an action in damages relating to the secondary securities market must prove that the action is brought in good faith and has a reasonable chance of success (s. 225.4 QSA). In Quebec,1 as elsewhere in Canada,2 no prior disclosure of evidence may be obtained by plaintiff for the purpose of meeting this burden. The procedure prescribed by the QSA is complete and sufficient, so recourse to the rules Code of Civil Procedure is unwarranted. Where such an action is brought by way of class action, the court must furthermore be convinced that the criteria for authorizing a class action are also met. The Court of Appeal does not expressly rule on whether prior disclosure is available to the investor  to sustain the proposed class action. These specific rules have no impact on the general rules regarding insurance, such as a plaintiff's direct right of action against the insurer of the person who caused the damage (art. 2501 CCQ). Regardless of the subject matter (the secondary market) or the procedural vehicle (class action), a court may order a defendant to disclose such documents which are necessary for a meaningful exercise of this right, such as insurance policies. In its recent decision in Amaya Inc. v. Derome, 2018 QCCA 120, the Court of Appeal ruled on the interaction between the Securities Act, CQLR, c.V-1.1 (QSA) and the rules specific to class actions in relation to applications by investors for prior disclosure of documents by a public issuer. We summarize here a much-anticipated decision. The Specific Framework of the QSA The QSA governs actions relating to financial markets. Although such actions may be introduced on an individual basis, class actions are regarded as the preferred vehicle, “given that publicly-traded issuers generally have many investors in like circumstances and, if something goes wrong, they are likely to come together to avail themselves of the advantages of a class action.”3 Class actions are merely one of the available vehicles, and it is in no way a requirement to use this type of proceeding. With respect to actions relating to the secondary market, section 225.4 QSA requires that any investor, whether acting personally or as representative of a proposed group, be authorized by the court before bringing the proposed action. This restriction was enacted –and similarly so across Canada–4 to preserve public confidence in stock markets,5 but also to protect public issuers against opportunistic actions brought in hopes of obtaining a settlement rather than to obtain compensation for actual damage.6 Accordingly, an investor who claims to have been defrauded will have to prove to the court from which authorization is requested that the proposed action is “in good faith and there is a reasonable possibility that it will be resolved in favour of the plaintiff” (s. 225.4 para. 3 QSA). Motions for authorization should be addressed as early as possible, so that judicial resources are allocated only to meritorious cases. Interaction With Class Actions If the action takes the form of a class action, the investor must also meet the criteria for authorization of a class action (art. 575 CCP), a burden which has been established to be a light one, since it simply involves proving that “the facts alleged appear to justify the conclusions sought” (art. 575(3) CCP).7 Not only do the QSA and the CCP impose different burdens, but the authorization they require arises at different moments in the course of the proceedings o: the authorization required by section 225.4 QSA must, necessarily, precede the authorization required by article 575 CCP. As the Court of Appeal points out: “This is eminently logical: where leave is required under the Act, there is no action upon which the class action, as a procedural vehicle, can rest until that leave is granted.”8 Of course, both issues can be disposed of in one judgment.9 With these distinctions made, it is clear that any application brought for the purpose of enabling an investor to meet the burden established by section 225.4 QSA must be analyzed pursuant to the rules set out in that provision and not the rules that generally apply to class actions.10 The judgment appealed from was therefore not a “pre-authorization class action judgment”; it was a “judgment prior to leave under the [QSA]”.11 Accordingly, it had to be reviewed in accordance with the requirements and the spirit of the QSA.12 The Judgment Under Appeal The trial judge had granted an application for documentary disclosure, relying on the parties’ general duty to cooperate set forth by article 20 of the CCP.13 He thus arrived at a solution that is unique in the Canadian legal landscape.14 Though rendered during a case management conference, the judgment under appeal  went significantly beyond the confines of case management. Accordingly, the application for leave should follow the rules applicable to judgments rendered in the course of proceedings, set out in article 31 para. 2 CCP.15 The trial judge's decision has addressed a point of law regarding to discovery, which impacted “the character of the proceedings themselves,” and which, if decided wrongly could cause irreparable harm to defendant, regardless of the expenses involved.16 Leave was granted and the Court of Appeal had to consider, on the merits, whether the trial judge was correct in applying the general principles of Quebec civil procedure to the applications for documentary disclosure that were before him. For the Code of Civil Procedure to “compensate[e] for the silence of the other laws if the context so admits,” as provided by its preliminary provision, such a silence must exist. In the opinion of the Court of Appeal, considering the purpose and history of section 225.4 QSA – in particular its goal of screening out opportunistic actions as soon as possible17 – and the uniformity of legislation on this subject in Canada,18 no such silence can be found to exist. On the contrary: in order to avoid short-circuiting the requirement for prior authorization and avoid fishing expeditions and mini-trials, judges who are responsible for authorizing actions of this nature must require that applicants meet their burden themselves.19 Neither the combination of articles 20 and 221 CCP or the specific context of class actions can sidestep that prohibition.20 Insofar as it was sought to allow the investor to meet the burden imposed by section 225.4 QSA, the application for documentary disclosure should have been dismissed. By contrast, the application to obtain disclosure of the insurance policies did not fall within the specific context of section 225.4 SA, and the trial judge's order was left undisturbed, Given the principle of cooperation (art. 20 CCP), but most importantly the long-settled principle that a third party seeking to exercise their right of action against the insurer of the person who caused the damage they suffered (art. 2501 CCQ) such applications can be justified in that they allow potential parties to the case to be identified.21 The Court of Appeal’s decision does not directly address whether class counsel may succeed in a request for “relevant evidence to be submitted” within the meaning of article 574 para. 3 CCP; such requests are traditionally considered to be properly made to contest  the application, that is, necessarily by defendant,  given that the allegations in the application for authorization to institute a class action must be assumed to be true at that stage.22 Summary Section 225.4 QSA is the expression, in Quebec law, of an intent common to all Canadian legislatures to create a screening mechanism for actions relating to the secondary market, in order to preserve investor confidence and deter frivolous suits. Accordingly, where an applicant seeks prior disclosure in order to meet the criterion for authorization set out in section 225.4 QSA, his or her application should be dismissed, including in a class action context. Where the objective of the application for prior disclosure is not one germane to the QSA, for instance, where an applicant seeks information to join an insurer to the proceedings, such application needs to be considered under the ordinary rules of Quebec law.   Theratechnologies Inc. v. 121851 Canada inc., [2015] 2 SCR 106, 2015 SCC 18 Canadian Imperial Bank of Commerce v. Green, [2015] 3 SCR 801, 2015 SCC 60 Par. 52 Par. 97 Par. 84 Paras. 49 and 84; following, inter alia, Theratechnologies Inc. v. 121851 Canada inc., [2015] 2 SCR 106, 2015 SCC 18 or Canadian Imperial Bank of Commerce v. Green, [2015] 3 SCR 801, 2015 SCC 60 Para. 50 Para. 46. Paras. 20, 46 and 54 Para. 45 Paras. 42, 45 and 55 Para. 55 Derome v. Amaya inc., 2017 QCCS 44, paras. 79 et seq. Para. 36; compare: Mask v. Silvercorp Metals Inc., 2016 ONCA 641 and Mask v. Silvercorp Metals Inc., 2014 ONSC 4161 – leave to appeal ref’d: Mask v. Silvercorp Metals, Inc., 2014 ONSC 464 (Ont. Div. Ct); Bayens v. Kinross Gold Corp., 2013 ONSC 6864; Silver v. Imax, (2009) 66 B.L.R. (4th) 222, leave to appeal ref'd, Silver v. Imax,2011 ONSC 1035 (Ont. Div. Ct) Paras. 73 to 79 Paras. 66 et seq.; leave to appeal had been referred to a panel of the Court: Amaya inc. v. Derome, 2017 QCCA 335. Paras. 49 and 84 Paras. 9 and 97 Paras. 9 and 93 Paras. 106 and 107 Collège d'enseignement général et professionnel de Jonquière (CÉGEP) v. Champagne, 1996 CanLII 4413 (CA) Benizri v. Canada Post Corporation, 2016 QCCS 454, para. 6

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