On February 12, 2024, the Court of Appeal rendered an interesting decision in a dispute between Société d’assurance Beneva Inc. (“Beneva”) and its insureds1.
Origin of the dispute and judgment of the Superior Court
The legal action was initially brought before the Superior Court by the insureds2, as a result of Beneva’s refusal to indemnify them following a fire in the building of which they were respectively owner and tenants. The claim included the following:
- Compensation for damage to the building;
- Compensation for cash lost in the fire;
- Disturbances, damages and inconveniences due to Beneva’s wrongful and abusive conduct in handling the claim.
In addition to contesting the claim, Beneva filed a cross-demand to request, from the insured who owned the building, the reimbursement of the indemnity paid to the hypothecary creditor following the fire in accordance with the mortgage clause contained in the policy, which provided that the insurer could not invoke against the creditor “the acts, negligence or declarations of the owners, tenants or occupants of the insured property” [our translation].
In the course of its investigation, Beneva obtained an expert report which concluded that the fire was intentional. Beneva denied coverage for this reason, as well as because of false and contradictory statements made by the insured during the investigation, pursuant to articles 2464 and 2472 CCQ. Based on mortgage clause, it nevertheless paid the creditor the balance of the hypothecary debt owed by the insured and obtained a subrogated release from the creditor.
The insureds’ claim was allowed in part by the Superior Court, and the cross-demand was dismissed, hence the appeal.
Intervention by the Court of Appeal
During the trial in Superior Court, Beneva had tried unsuccessfully to establish that its insured was the perpetrator of the fire. The Court of Appeal refused to intervene on this point and on the condemnation relating to the loss of cash, considering that there was no manifest and decisive error by the trial judge in his analysis of the facts.
The Court of Appeal did, however, intervene on the following points:
- Disturbances, damages and inconveniences:
The Court of Appeal ruled that the trial court had erred in ordering Beneva to pay damages on the grounds that it had not acted in good faith in handling its insureds’ claim. An insurer handling a claim has an obligation of means, not of result. The mere fact that a court concludes, after a trial, that the loss should have been covered from the outset, does not mean that the insurer committed a fault distinct from its refusal to pay,or that it acted in bad faith.
In this case, there was no evidence of bad faith on the part of the insurer or of an incomplete investigation. The cause of the fire – intentional human intervention – was uncontradicted, and the evidence showed that Beneva had carried out a thorough investigation and had not solely considered its insured’s liability.
The award of damages for disturbances and inconveniences was therefore reversed.
- Starting point for calculating interest and additional indemnity:
According to the Court of Appeal, the trial judge erred in awarding interest on the sums payable by Beneva from the date of the fire.
The payment of interest for late payment of an obligation to pay a sum of money is provided for in article 1617 CCQ, according to which interest runs from the date of default. The judge has no discretion to set a different starting point for the calculation.
In the case of insurance, article 2473 CCQ stipulates that the insurer must pay the indemnity to the insured within 60 days of the declaration of loss or the communication of additional information requested by the insurer. Once this period has expired, the insurer is in default by operation of law.
Interest therefore begins to accrue from the expiry of this time limit, and not from the date of the fire.
- Cross-demand
The Court of Appeal also held that the trial court had erred in failing to take into account the payment made by Beneva to the hypothecary creditor, and in dismissing the cross-demand without explicit reason.
The Court of Appeal reiterated that the purpose of an insurance contract is to compensate for the loss suffered in the event of a claim and must not allow the insured to enrich himself. In this case, if the dismissal of the cross-demand were to be upheld, Beneva’s insured would find himself benefiting from full compensation for the loss of his building, in addition to having his mortgage debt extinguished. The cross-demand should therefore be allowed, and the amount paid to the hypothecary creditor (plus interest and additional indemnity) should be deducted from the amount payable by Beneva.
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Although each case is unique, the general principles referred to by the Court of Appeal are certainly likely to find application in many disputes between insurers and insureds.
1Société d’assurance Beneva inc. c. Bordeleau, 2024 QCCA 171.
2Bordeleau c. La Capitale Assurances générales inc., 2023 QCCS 3052