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

July 13, 2021

The question of insurers’ duty to defend is back in the spotlight. On March 18, 2021, the Superior Court once again considered the issue in its application of the law to facts relevant to the dispute.¹

Facts

In April 2016, Cégerco Inc. (“Cégerco”), a general contractor, retained the services of Construction Placo Inc. (“Placo”) for the supply and installation of exterior cladding made of metal wall panels, which were manufactured by Kingspan Insulated Panels Ltd. (“Kingspan”).

On May 24, 2017, Cégerco resiliated its contract with Placo on the grounds that Placo had caused numerous delays to the work schedule. Placo therefore instituted proceedings against Kingspan to recover sums advanced to the company, and against Cégerco for the damages resulting from the resiliation of the contract. Kingspan and Cégerco filed cross-applications, alleging non-performance by Placo.

Faced with these cross-applications, Placo turned to its insurer for it to take up its defence.

However, the insurer adopted the position that it had no obligation to defend Placo or accept its insurance claim. Placo then applied to the Superior Court by way of an Wellington type application to have the insurer take up its defence in the dispute opposing it to Cégerco and Kingspan.

Reasons

After briefly reviewing the principles of Wellington type applications and the Supreme Court’s teachings in the landmark Progressive Homes² decision, the Court concluded that the damages claimed in Kingspan’s cross-application did not arise from material damage or a loss. It did not dwell on this question any further, judging that insurance coverage did not apply.

The Court then addressed Cégerco’s cross-application. Here again, it held that the damages claimed were not the result of material damage within the meaning of the insurance policy. Thus, after having analyzed Cégerco’s breakdown of damages claimed, it concluded that the sums represented monetary damage resulting from the fact that Placo had failed to fulfill its obligation to deliver compliant panels.

The Court further noted that [translation] “monetary losses related to defective or non-compliant products” did not fall within the scope of the commercial liability insurance’s coverage.

The Court drew a distinction between the facts of this case and those of Progressive Homes cited above,³pointing out that the issue here was simply the non-performance of a contract. The Court held that the panels could not be the cause of the material damage that Cégerco suffered, as they had not been installed on the building, and that the material damage [translation] “rather resulted from a normal, if not foreseeable, incident that could have occurred in the normal course of any business.” Thus, according to the Court, although Cégerco was bound to take steps to remedy the delay in the delivery of the panels, and that such steps may have resulted in damage to the structure, Placo’s breach of contract did not result in a loss that would make insurance coverage applicable.

For these reasons, the Court dismissed the plaintiff’s Wellington type application and that of the cross-applicant Placo.

Conclusion

What this decision means is that although an insurer’s duty to defend arises as soon as there is a possibility that material damage claimed falls within the scope of an insurance policy’s coverage, monetary damage suffered purely as a result of a breach of contract is not a sufficient legal basis for triggering an insurer’s duty to defend.

Construction Placo inc. c. Kingspan Insulated Panels Ltd., 2021 QCCS 1230
Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33. [2010] 2 SCR 245.
Id.

Back to the publications list

Author

Dominic Boisvert
Partner, Lawyer

Stay tuned for the latest legal news. Subscribe to our newsletter.

Subscribe to publications

Publications that might interest you

March 13, 2024

An insurer ordered to pay damages – The Court of Appeal intervenes

On February 12, 2024, the Court of Appeal of Quebec handed down its decision in Société d’assurance Beneva inc. c. Bordeleau,1 dealing in particular with the burden of proof incumbent on an insurer when it denies coverage on the basis of an insured’s intentional fault, and an award of damages against an insurer for breach of its duty of good faith. The facts This decision was rendered further to a dispute between Société d’assurance Beneva inc. (hereinafter the “Insurer") and some of its insureds, including Mr. Michel Bordeleau, the owner of a multi-storey rental building that was damaged by fire. He lived in one of the units with his parents. According to the uncontested expert evidence presented, the fire originated in one of the storage spaces in the basement of the building, which was assigned to a lessee couple. Access to the basement and all storage spaces was locked. The cause of the fire was deemed to be intentional, given the traces of accelerant found in the area of the fire’s origin. The instigator or instigators were not identified. On November 21, 2016, 60 days after the fire, the Insurer denied coverage because of the intentional nature of the fire, which it attributed to its insured, Mr. Bordeleau. A few months later, on March 22, 2017, it reached an agreement with Mr. Bordeleau’s hypothecary creditor. The subrogation release provides for the Insurer’s payment of the balance of the hypothecary debt of $149,720.99, and subrogation to the creditor’s rights up to the amount paid. Mr. Bordeleau, in his belief that he had been harmed by the Insurer’s decision, instituted legal proceedings to recover the insurance benefit to which he claimed to be entitled, while also claiming damages. The Insurer filed a cross-application for recovery of the balance paid to the hypothecary creditor. The trial The trial judge, relying on the evidence, concluded that although the fire was intentional in nature, the Insurer had not discharged its burden of establishing the insured’s involvement in the fire. Taking this conclusion into account, she then proceeded to analyze the plaintiffs’ claim and to weigh the damages in light of the evidence and the limits of the insurance policy. In particular, she ruled in favour of Mr. Bordeleau’s claim for damages for the building, the amount of which was admitted. In addition, she ordered the Insurer to pay $15,000.00 in damages for nuisance and inconvenience caused by its conduct, which she considered faulty. This conclusion was based on the Insurer’s duty to act in good faith, to consider the facts and act on their basis, and to conduct a full investigation, duty which the Insurer had breached by failing to sufficiently follow-up on leads that could have identified who was responsible for the fire. In order to deny coverage, clear and compelling evidence of the insured’s involvement, going beyond mere suspicion, was necessary. Given the sometimes implausible and sometimes contradictory testimonies of the people met during the investigation, there was no such evidence. In other words, the claims adjuster had jumped to conclusions. In light of her conclusions, the trial judge dismissed the Insurer’s cross-application, which she deemed to be unfounded, without giving further reasons. The appeal The Court of Appeal first refrained from intervening in light of the Superior Court’s conclusions regarding the failure to demonstrate Mr. Bordeleau’s involvement in the fire. It did however intervene on the damages awarded for nuisance and inconvenience suffered by the insureds, and pointed out the following: [40] [translation] Firstly, apart from the strict mathematical calculation of the amounts payable, and perhaps other technical aspects not requiring the exercise of judgment, the processing of a claim is an obligation of means, not one of result. The fact that a court found at the end of a trial held many years after the incident that an insurer should have covered in the first place obviously does not mean that the insurer necessarily committed a fault other than its refusal to pay, making it civilly liable, let alone that it acted in bad faith. [41] In this case, there was nothing in the evidence to support a finding of fault or breach of the duty of good faith. [42] On the contrary, there is enough evidence to conclude that the investigation by the appellant and its experts, which led to the denial of coverage, was not botched. . . . In the opinion of the Court of Appeal, the evidence showed that the Insurer’s investigation had been done in a conscientious manner, in particular because it had transferred the claim file to a special investigative unit, mandated a fire origin and cause expert and external investigators, and interviewed many witnesses who could have provided information on the circumstances of the incident. Moreover, it had no allegations that the Insurer had failed to consider exculpatory evidence against its insured. In this context, although it took several years for the insured to obtain his due, with all the inconveniences of going through proceedings, the Insurer’s conduct could not be considered offending or revealing of bad faith. No damages could be awarded. Lastly, the Court of Appeal took a closer look at the question of the Insurer’s subrogation to the hypothecary creditor’s rights, which was little discussed in the judgment under appeal. Reiterating the fundamental principle in property and casualty insurance that the indemnification of an insured cannot result in enrichment, the Court of Appeal concluded that dismissing the Insurer’s cross-application would have such an effect. In addition to receiving an insurance benefit for the damages sustained, Mr. Bordeleau would also have had seen his hypothecary debt discharged. This would have given him a clear advantage. In this case, the benefit paid to the hypothecary creditor needed to be deducted from the damages claimed by the insured. The trial judge’s finding were thus revised accordingly. Conclusion Despite the clear principles addressed in this case, the Court of Appeal’s analysis points to practical difficulties that insureds and insurers can encounter when dealing with similar claims. It points to the coexistence of two factors that can be difficult to balance: First, the burden of proof where coverage is denied on the basis of the insured's intentional fault, and second, the insurer’s obligation of means in processing the associated claim. The dismissal of a coverage defence does not in itself warrant awarding damages. Société d’assurance Beneva inc. c. Bordeleau, 2024 QCCA 171

Read more
January 25, 2024

Serious Illness Insurance Coverage: An Applicant Hides His True Health Condition in Order to Deceive the Insurer

Recently,1 Justice Isabelle Germain of Quebec’s Superior Court ruled on a case involving insurance fraud in the matter of Paul-Hus v. Sun Life Canada, compagnie d’assurance-vie2. This ruling illustrates that applicants must answer the insurer’s questions honestly; should an applicant try to mislead the insurer, he will have to face the consequences. In this case, the plaintiff Daniel Paul-Hus (Paul-Hus) claimed an amount of $150,000 from Sun Life Canada by way of benefits as set out in the serious illness insurance policy taken out by his company (of which he was the sole shareholder and director) in 2015, along with $50,000 for the trouble and inconvenience caused by Sun Life’s refusal to honour its contractual undertakings. Paul-Hus claimed that he suffered from amyotrophic lateral sclerosis (ALS) diagnosed on February 1, 2018. The claim form was submitted by him on August 16, 2018. Sun Life refused his claim since an assessment of his medical records revealed that his prior medical history was inconsistent with the information he had provided during a telephone interview on March 17, 2015. Sun Life considered the contract null and void due to Paul-Hus’s false declarations while filling out the questionnaire he was required to complete when taking out the policy. Essentially, it was Sun Life’s position that Paul-Hus had not answered certain questions correctly in the questionnaire and that, if he had, the insurer would not have issued the serious illness policy. It was brought into evidence that, during the telephone interview of March 17, 2015, Paul-Hus had to answer questions on his lifestyle habits, his current health condition and his prior medical history. Some of the questions in Sun Life’s medical questionnaire sought to ascertain whether Paul-Hus felt weakness in his arm and whether a doctor had ever recommended any tests or if he was awaiting any test results. These questions were answered in the negative by Paul-Hus. However, a review of the file reveals that these answers were inaccurate. The insurance policy was issued on March 17, 2015, while the evidence indicated that Paul-Hus had consulted his neurologist a few weeks before, on February 24, 2015, due to weakness in his left hand, the symptoms having appeared progressively since August 2013. At that time, additional tests were prescribed (cervical and brain imaging, magnetic resonance imaging and numerous blood tests). Nonetheless, in his Originating Application, Paul-Hus asserts that, at the time the policy was issued, he had not noticed or suspected any symptoms of disease and contends that, according to the doctors, the disease had developed suddenly. In her judgment, Justice Germain reiterated the principles governing declarations of risk in the insurance sector, pointing out that false declarations can result in the nullification of the contract.3 However, in this case, the policy had been in force for over two years at the time of the claim for indemnification, so that the insurer was required to prove fraud in order to nullify the contract4 (Paul-Hus’s intention to hide his true health condition). Justice Germain found that Sun Life had discharged the burden of demonstrating Paul-Hus’s fraudulent dealings. In addition to his medical records, Sun Life produced a recording of the telephone interview held on March 17, 2015, as well as a transcription of the interview. In the Court’s view, it was clear that Paul-Hus was under neurological investigation due to weakness in his left arm at the time he was completing the questionnaire. Although in his testimony at trial,5 he claimed not to know that this information could have had an impact on the insurer’s decision, Justice Germain did not side with this version. For Justice Germain, the evidence presented by the insurer demonstrated that it had been Paul-Hus’s intention to deceive Sun Life. This being said, in accordance with the requirements of article 2408 C.C.Q., Sun Life had to demonstrate not only that it would not have covered this risk had it been aware of the new information resulting from the claim, based on its own underwriting standards, but that any reasonable insurer would have refused to issue the serious illness insurance policy under the circumstances. Sun Life also discharged this burden and completed this “evidence of materiality” by presenting the testimony of an underwriting expert. Finally, and in addition to the above, Paul-Hus claimed that he had been diagnosed with amyotrophic lateral sclerosis (ALS), which he was unable to support with evidence. Under cross-examination, Paul-Hus admitted that he had never received any such diagnosis. Instead, he suffered from a lower motoneuron disease, which did not qualify as a “serious illness” under the policy. In conclusion, in the Court’s opinion, the policyholder knowingly misled the insurer and falsified his risk assessment in order to obtain coverage. Moreover, given that Paul-Hus was not insurable for serious illness coverage in the eyes of a reasonable insurer, the Court concluded that the contract should be nullified ab initio and terminated. This decision reminds us of how important it is for policyholders to answer insurers’ questionnaires honestly when making their initial declaration of risk : [TRANSLATION] [55] In the Court’s opinion, Paul-Hus failed to answer the questionnaire sincerely. He did not act as would have a reasonable insured. He was aware of the importance of giving honest answers to the questions asked during the telephone interview. An insurance contract is one requiring the utmost good faith, particularly as far as the assessment of risk is concerned. It is of interest that in this matter, Paul-Hus gave his testimony at the hearing by way of videoconference, which Justice Germain comments as follows: [TRANSLATION] [49] One notes that, while giving his testimony via videoconference at the hearing, Paul-Hus referred to a document, which would be obtained and filed by Sun Life. The document is Sun Life’s letter of refusal of December 28, 2018, which he annotated with the words “good faith” and “answered no in all good faith I was not awaiting anything no results”. It seems odd, to say the least, that he should make the effort to write down these words as a reminder and should feel the need to repeat them several times during his testimony and when cross-examined. [50] However, it is not enough to repeat that one acted in good faith to justify such omissions. Paul-Hus appealed Justice Germain’s decision. Sun Life filed a Motion to Dismiss the appeal, which was dismissed on January 15th, 20246. We will therefore have to wait and see what happens before the Court of appeal. To sum up… Insurance contracts are essentially characterized by the risks they cover and by what risks the insurer is willing to tolerate for a given premium. The Civil Code of Québec recognizes two specific instances in which the actual declaration of risk is fundamental: the initial declaration of risk before the contract is drawn up7 and any increase in the risk level during the term of the contract.8 The declaration of risk is essential to the insurer when it comes to accurately determining the extent of the risk and the premium that will be charged if the insurer agrees to provide coverage. As a general rule, the policyholder’s utmost good faith should be in evidence during the initial declaration stage given that this declaration paves the way for the prospective contractual relationship and its various terms and conditions. A policyholder will be deemed to have properly met their obligation “if the representations are such as a normally provident insured would make, if they were made without material concealment and if the facts are substantially as represented.”9 Since Policyholders are responsible for informing the insurer about any relevant factors that might change its risk assessment, i.e., a positive disclosure requirement, it stands to reason that the Civil Code sets out consequences in the event that this requirement is not fulfilled by the policyholder. A policyholder who makes false statements can therefore see his insurance contract nullified ab initio.10 In other words, the contract would be deemed to have never existed because the basis on which it rests, the initial declaration of risk, was flawed. It should also be noted that nullification will only be relative and that the insurer may elect not to assert it. Consequently, the Court, after having heard the evidence, cannot rule ex officio that the contract is null and void. The insurer has two (2) years after the effective date of the contract to request nullification ab initio based on false statements or unwillingness to fully disclose risk.11 Set against that backdrop, the insurer’s burden of proof amounts to demonstrating that the policyholder made false statements or concealed relevant facts. Insurance fraud Once the two (2) year window of opportunity has closed, the insurer faces an additional burden of proof: it must also demonstrate that the policyholder committed fraud.12 Fraud is distinguished from false declarations or concealment. Among other things, it results from the misrepresentation or omission of a fact in the knowledge that, if the truth were disclosed, the insurer would not issue the policy under the negotiated conditions. Therefore, the policyholder must have intentionally deceived the insurer in order to obtain an advantage that would not have otherwise been obtained. Insurers, therefore, have a heavy burden of proof if the two-year threshold has been crossed. This is because fraud cannot be presumed; it must be established on the balance of probabilities. Burden of proof Whether or not the two (2) year period is still running, the insurer must (1) demonstrate that it would not have entered into the contract based on its own underwriting criteria; and (2) that a reasonable insurer in the same circumstances (i.e., dealing with false declarations, concealment or fraud) would have also declined to issue coverage.13 To recap, before the expiry of the two (2) year period, insurers seeking a contract’s nullification ab initio must prove that: The policyholder made false declarations or concealed information when making the initial declaration of risk. The insurer would not have entered into the contract based on its own underwriting criteria if it had been apprised of the concealed information. A reasonable insurer in the same circumstances would have also declined to take on the risk. After the expiry of the two (2) year period following the effective date of the policy, insurers requesting the contract’s nullification ab initio must prove that: The policyholder made false declarations or concealed information when making the initial declaration of risk AND intended to deceive the insurer. The insurer would not have entered into the contract based on its own underwriting criteria if it had been apprised of the concealed information. A reasonable insurer in the same circumstances would have also declined to take on the risk. Judgment handed down on October 3, 2023; the hearing was held on May 25 and 26, 2023. 2023 QCCS 3890; this ruling was appealed from (200-09-010693-239). A motion to dismiss the appeal was filed by the insurer and arguments were heard on January 15, 2024. That same day, the Court of Appeal dismissed the insurer’s motion to dismiss the appeal. The matter therefore continues before the Court of Appeal. Art. 2410 C.C.Q. Art. 2424 C.C.Q. Via videoconference. Paul-Hus v. Sun Life Canada, compagnie d'assurance-vie, 2024 QCCA 46 Arts. 2408 and 2409 C.C.Q. Arts. 2466 et seq. C.C.Q. Art. 2409 C.C.Q. If the false statement deals exclusively with the policyholder’s age, the contract cannot be declared null and void (art. 2410 C.C.Q.) unless the policyholder’s actual age is outside the insurable range established by the insurer (art. 2411 C.C.Q.). Art. 2424 C.C.Q. Civil Code, art. 2424, para. 1 C.C.Q. CGU compagnie d’assurance du Canada v. Paul, 2005 QCCA 315, para. 2 and art. 2408 C.C.Q.

Read more
October 19, 2023

Smart product liability: issues and challenges

Introduction In 2023, where do we stand in terms of liability where smart products are concerned? The rules governing product liability set out in the Civil Code of Québec were introduced early in the 20th century in response to the industrial revolution and the growing number of workplace accidents attributable to tool failures.1 Needless to say, the legislator at the time could not have anticipated that, a century later, the tools to which this legislation applied would be equipped with self-learning capabilities enabling them to perform specific tasks autonomously. These “smart products,” whether they are intangible or integrated into tangible products, are subject to the requirements of general law, at least for the time being. For the purposes of our analysis, the term “smart products” refers to products that have: Self-learning capabilities, meaning that they can perform specific tasks without being under a human being’s immediate control. Interconnectivity capabilities, meaning that they can collect and analyze data from their surroundings. Autonomy capabilities, meaning that they can adapt their behaviour to perform an assigned task more efficiently (optional criterion).2 These capabilities are specific to what is commonly referred to as artificial intelligence (hereinafter referred to as “AI”). Applying general law rules of liability to smart products Although Canada prides itself on being a “world leader in the field of artificial intelligence,”3 it has yet to enact its first AI law. The regulation of smart products in Quebec is still in its infancy. To this day, apart from the regulatory framework that applies to autonomous vehicles, there is no legislation in force that provides for distinct civil liability rules governing disputes relating to the marketing and use of smart products. There are two factors that have a major impact on the liability that applies to smart products, namely transparency and apportionment of liability, and both should be considered in developing a regulatory framework for AI.4 But where does human accountability come in? Lack of transparency in AI and product liability When an autonomous product performs a task, it is not always possible for either the consumer or the manufacturer to know how the algorithm processed the information behind that task. This is what researchers refer to as “lack of transparency” or the “black box” problem associated with AI.5 The legislative framework governing product liability is set out in the Civil Code of Québec6 and the Consumer Protection Act.7 The provisions therein require distributors, professional sellers and manufacturers to guarantee that the products sold are free from latent defects. Under the rules governing product liability, the burden of proof is reversed, as manufacturers are presumed to have knowledge of any defects.8 Manufacturers have two means to absolve themselves from liability:9 A manufacturer may claim that a given defect is the result of superior force or a fault on the part of the consumer or a third party; or A manufacturer may argue that, at the time that the product was brought to market, the existence of the defect could not have been known given the state of scientific knowledge. This last means is specifically aimed at the risks inherent to technological innovation.10 That being said, although certain risks only become apparent after a product is brought to market, manufacturers have an ongoing duty to inform, and how this is applied depends on the evolution of knowledge about the risks associated with the product.11 As such, the lack of transparency in AI can make it difficult to assign liability. Challenges in apportioning liability and human accountability There are cases where the “smart” component is integrated into a product by one of the manufacturer’s subcontractors.In Venmar Ventilation,12 the Court of Appeal ruled that the manufacturer of an air exchanger could not be exempted from liability even though the defect in its product was directly related to a defect in the motor manufactured by a subcontractor. In this context, it would be reasonable to expect that products’ smart component would be likely to result many similar calls in warranty, resulting in highly complex litigation cases, which could further complicate the apportionment of liability. Moreover, while determining the identity of the person who has physical custody of a smart product seems obvious, determining the identity of the person who exercises actual control over it can be much more difficult, as custody and control do not necessarily belong to the same “person.” There are two types of custodians of smart products: The person who has the power of control, direction and supervision over a product at the time of its use (frontend custody); The person who holds these powers over the algorithm that gives the product its autonomy (backend custody)13. Either one of these custodians could be held liable should it contribute to the harm through its own fault. As such, apportioning liability between the human user and the custodians of the AI algorithm could be difficult. In the case of a chatbot, for example, determining whether the human user or the AI algorithm is responsible for defamatory or discriminatory comments may prove complex. C-27: canadian bill on artificial intelligence Canada’s first AI bill (“Bill C-27”) was introduced in the House of Commons on June 16, 2022.14 At the time of publication, the Standing Committee on Industry and Technology was still reviewing Bill C-27. Part 3 of Bill C-27 enacts the Artificial Intelligence and Data Act. If adopted in its current form, the Act would apply to “high-impact AI systems” (“Systems”) used in the course of international and interprovincial trade.15 Although the government has not yet clearly defined the characteristics that distinguish high-impact AI from other forms of AI, for now, the Canadian government refers in particular to “Systems that can influence human behaviour at scale” and “Systems critical to health and safety.”16 We have reason to believe that this type of AI is what poses a high risk to users’ fundamental rights. In particular, Bill C-27 would make it possible to prohibit the conduct of a person who “makes available” a System that is likely to cause “serious harm” or “substantial damage.”17 Although the Bill does not specifically address civil liability, the broad principles it sets out reflect the best practices that apply to such technology. These best practices can provide manufacturers of AI technology with insight into how a prudent and diligent manufacturer would behave in similar circumstances. The Bill’s six main principles are set out in the list below.18 Transparency: Providing the public with information about mitigation measures, the intended use of the Systems and the “content that it is intended to generate”. Oversight: Providing Systems over which human oversight can be exercised. Fairness and equity: Bringing to market Systems that can limit the potential for discriminatory outcomes. Safety: Proactively assessing Systems to prevent “reasonably foreseeable” harm. Accountability: Putting governance measures in place to ensure compliance with legal obligations applicable to Systems. Robustness: Ensuring that Systems operate as intended. To this, we add the principle of risk mitigation, considering the legal obligation to “mitigate” the risks associated with the use of Systems.19 Conclusion Each year, the Tortoise Global AI Index ranks countries according to their breakthroughs in AI.20 This year, Canada ranked fifth, ahead of many European Union countries. That being said, current legislation clearly does not yet reflect the increasing prominence of this sector in our country. Although Bill C-27 does provide guidelines for best practices in developing smart products, it will be interesting to see how they will be applied when civil liability issues arise. Jean-Louis Baudouin, Patrice Deslauriers and Benoît Moore, La responsabilité civile, Volume 1: Principes généraux, 9th edition, 2020, 1-931. Tara Qian Sun, Rony Medaglia, “Mapping the challenges of Artificial Intelligence in the public sector: Evidence from public healthcare”, Government Information Quarterly, 2019, 36(2), pp. 368–383, online EUROPEAN PARLIAMENT, Civil Law Rules on Robotics, European Parliament resolution of 16 February 2017 with recommendations to the Commission on Civil Law Rules on Robotics (2015/2103(INL)), available online at TA (europa.eu). GOVERNMENT OF CANADA, The Artificial Intelligence and Data Act (AIDA) – Companion document, online. EUROPEAN COMMISSION, White Paper on Artificial Intelligence: a European approach to excellence and trust, COM. (2020), p. 3. Madalina Busuioc, “Accountable Artificial Intelligence: Holding Algorithms to Account”, Public Administration Review2020, online. Civil Code of Québec (CQLR, c. C-1991, art. 1726 et seq. Consumer Protection Act, CQLR c. P-40.1, s. 38. General Motors Products of Canada v. Kravitz, 1979 CanLII 22 (SCC), p. 801. See also: Brousseau c. Laboratoires Abbott limitée, 2019 QCCA 801, para. 89. Civil Code of Québec (CQLR, c. CCQ-1991, art. 1473; ABB Inc. v. Domtar Inc., 2007 SCC 50, para. 72. Brousseau, para. 100. Brousseau, para. 102. Desjardins Assurances générales inc. c. Venmar Ventilation inc., 2016 QCCA 1911, para. 19 et seq. Céline Mangematin, Droit de la responsabilité civile et l’intelligence artificielle, https://books.openedition.org/putc/15487?lang=fr#ftn24; See also Hélène Christodoulou, La responsabilité civile extracontractuelle à l’épreuve de l’intelligence artificielle, p. 4. Bill C-27, An Act to enact the Consumer Privacy Protection Act, the Personal Information and Data Protection Tribunal Act and the Artificial Intelligence and Data Act and to make consequential and related amendments to other Acts, Minister of Innovation, Science and Industry. Bill C-27, summary and s. 5(1). The Artificial Intelligence and Data Act (AIDA) – Companion document, Government of Canada, online. The Artificial Intelligence and Data Act (AIDA) – Companion document canada.ca. Bill C-27, s. 39(a). AIDA, Companion document Bill C-27, s. 8. TORTOISE MEDIA, The Global AI Index 2023, available at tortoisemedia.com.

Read more
August 3, 2023

Planned obsolescence: Possible amendments to the Consumer Protection Act to keep an eye on

Introduction On June 1, 2023, the Minister of Justice, Simon Jolin-Barrette, tabled and presented Bill 29 entitled An Act to protect consumers from planned obsolescence and to promote the durability, repairability and maintenance of goods 1 (hereinafter the “Bill”) before the National Assembly. The Bill mainly provides for amendments to the Consumer Protection Act 2 (“CPA”) and reaffirms the government’s desire to protect consumers, in particular by improving the legal warranties available to them and introducing the notion of planned obsolescence into Quebec law. The date on which the new provisions will come into force has not yet been set, but the Bill is nonetheless worthy to consider right now. Proposed amendments to the Consumer Protection Act Purpose of the amendments to the CPA The main purpose of the Bill is to put an end to the business of trading in goods subject to planned obsolescence, defined as a “technique aimed at reducing the normal operating life” of a good3. Warranties The CPA already provides a framework for the legal warranty of quality that may apply to goods forming the object of a contract between a consumer and a merchant. This warranty supplements the warranty provided for in articles 1726 and following of the Civil Code of Québec. Under section 38 of the CPA, goods “must be durable in normal use for a reasonable length of time, having regard to their price, the terms of the contract and the conditions of their use4.” That being said, the Bill would further protect consumers by introducing “a warranty of good working order” for certain new goods that are the object of a contract of sale or long-term contract of lease5. The duration of such warranty would be determined by regulation6. If left unchanged, the warranty would apply to the following goods: Refrigerator; Dishwasher; Washing machine; Dryer; Television set; Desktop or laptop computer; Electronic pad; Cellular telephone; Video game console; Air conditioner; Heat pump. As for additional warranties, commonly referred to as “extended warranties,” merchants would now be required to inform consumers of the terms of their right to resolve a contract that includes an additional warranty7, adding to their obligation to inform consumers of the legal warranty before offering an additional warranty8. Merchant and manufacturer's obligations The Bill would impose a number of new obligations on merchants and manufacturers, particularly as regards display. For example, merchants would have to indicate the duration of the warranty of good working order near the goods concerned, in a manner as equally prominent as their price9. The Bill introduces a warranty of “availability” for goods of a nature that requires maintenance work. Merchants or manufacturers bound by the warranty of availability would have to make the replacement parts, repair services and information necessary to maintain or repair the goods available for a reasonable length of time and at a reasonable price after the contract has been concluded10. Seriously defective vehicles Under the Bill, automobiles would be declared “seriously defective” in the following circumstances, in particular11: After one or more unsuccessful repair attempts for defects under the manufacturer’s conventional warranty, including three unsuccessful repair attempts for the same defect; If the defects appear within three years of the first sale or long-term lease of the automobile where it has not covered more than 60,000 kilometres; The defects render the automobile unfit for the purposes for which it is ordinarily intended. Where all of the above apply, the automobile in question would be deemed to be affected by a latent defect. Penalties As concerns penal fines, the Bill provides for a significant increase in the amounts involved and introduces new offences, such as the following: Failure to meet the obligation to disclose the legal warranty of good working order. This could give rise to a fine of $3,000 to $75,000 in the case of a legal person and of $1,500 to $37,50012 in the case of a natural person. Trading in goods for which obsolescence is planned. Offending companies could be fined a minimum of $5,000 or an amount equal to twice the pecuniary benefit derived from the commission of the offence, whichever is greater. The maximum fine will be $125,000, or an amount equal to four times the pecuniary benefit derived from the commission of the offence, whichever is greater13. The Bill also proposes administrative monetary penalties for “objectively observable” failures to comply with the CPA14. The maximum penalty for a legal person will be $3,500 for each day the failure continues15. Moreover, the Bill provides that officers and directors of a company having committed an offence under the CPA would be presumed to have committed the offence themselves. It would be possible to rebut this presumption insofar as the person concerned is able to establish either that they exercised due diligence or that they took “all necessary precautions” to prevent the commission of the offence16. Conclusion The Bill aims to put a stop to planned obsolescence. The obsolescence of goods is planned where a “technique aimed at reducing its normal operating life is used on them17.” The proposed amendments to the CPA establish a new warranty of “good working order.” It will be interesting to see whether it will tie in with the teachings of the Supreme Court of Canada on the legal warranty of quality in the landmark Domtar decision18. How the notion of planned obsolescence will be applied in practice will also be something to watch closely, as the Courts will be confronted with it for the first time. Certain issues could arise, especially with the burden of proof and evidence aspects. The amendments to the CPA will also entail new obligations for manufacturers and merchants, particularly in terms of disclosure and information regarding the warranty of good working order and the additional warranty. The proposed amendments in the Bill also include a legal warranty of availability of parts and services for goods of a nature that requires maintenance work. The severity of the fines applicable to goods for which obsolescence is planned will be something to consider. In short, this Bill is definitely one to watch! An Act to protect consumers from planned obsolescence and to promote the durability, repairability and maintenance of goods, Bill29 (Introduction – June 1, 2023), 1st Sess., 43rd Legis. (Qc) (“B.”) Consumer Protection Act, CQLR c. P-40.1 B., s. 14; CPA, s. 227.0.4, para. 2 CPA, s. 38 B., s. 3; CPA., s. 38.1 B., s. 3; CPA, s. 38.1, para. 2 Current obligation under the CPA, s. 228.1., para. 1 B., s. 15; CPA, s. 228.3 B., s. 3; CPA, s. 38.8 B., s. 3; CPA, s. 39, para. 1; s. 39.3, para. 1 B., s. 5; CPA, s. 53.1 B., s. 19; CPA, s. 277 Id. B., s. 18; CPA, s. 276.1 B., s. 18; CPA, s. 276.1, para. 2; s. 276.2 B., s. 19; CPA, s. 282.1 B., s. 14; CPA, s. 227.0.4, para. 2 ABB Inc. v. Domtar Inc., 2007 SCC 50

Read more