On July 22, Arch Insurance Limited, represented and defended by RSS, had the insureds’ claim for the reconstruction value of their building damaged following a fire dismissed by the Superior Court in Mathieu vs. Arch Insurance Limited.
This judgment addresses questions of great interest in uncommon areas:
- The application of section 55 of the Charter of the French Language (hereinafter “Charter”);
- Basic principles of insurance policy interpretation;
- The objectives of replacement cost insurance;
- Sanctions arising from procedural misconduct in proceedings under articles 51 and 342 of the Code of Civil Procedure (hereinafter “C.P.”).
The Insurance Claim
A few months before the fire in August 2019, the insureds decided to expand the cultivation of cannabis in their premises located on the second floor of a stable belonging to the plaintiff Gaétan Mathieu. To do so, they took out a mortgage, one of the conditions of which was the purchase of an insurance policy.
Arch Insurance Limited (hereinafter “Arch”) agreed to cover the risk and offered the following coverage: building with an insurance limit of $1,500,000, “contents of any description” to cover “cannabis production equipment” in the amount of $200,000, subject to a $10,000 deductible, and public liability coverage of $2,000,000.
On August 9, 2019, the building caught fire, the cause of which remained undetermined. On October 13, 2019, the insureds received an indemnity of $1,267,138.41 representing the depreciated value of the building and equipment, according to the expert appraisals carried out by experts retained by Arch.
The insureds claimed that the terms of the insurance policy were unenforceable against them, since they only received the Special Conditions prior to the fire, and since these were only available in English, contrary to the terms of section 55 of the Charter. They were therefore claiming an additional sum of $1,495,119.29 to the indemnity already paid. This sum represented the difference between the replacement value of the building and equipment and the depreciated value on the day of the loss, which the insurer had already paid.
The Language of the Insurance Policy (art. 55 of the Charter)
Since the insurance contract is a contract of adhesion, section 55 of the Charter applies. This section read as follows at the time the insurance policy was taken out:
“Contracts predetermined by one party, contracts containing printed standard clauses, and the related documents, must be drawn up in French. They may be drawn up in another language as well at the express wish of the parties.”
The insureds alleged that they did not understand English, so that the terms of the insurance policy were incomprehensible to them. Consequently, since the language of the policy contravened section 55 of the Charter, and since they had never consented to receive the policy in English, the terms of the policy, including the replacement cost conditions, were unenforceable against them.
The Court rejected the insureds’ arguments. It found that the insureds had received all the necessary explanations of the scope of insurance from their broker, that they had agreed to receive the policy in English only, and that the insureds have not established that they had sustained a prejudice, as they had been indemnified by the insurer. The Court also analyzed the case law on the application of section 55 of the Charter. It noted that the nullity of the contract is imposed when the insured suffers prejudice following receipt of a policy in a language other than French. In this case, as the insurer did not deny coverage and paid the indemnity based on the conditions sought by the insureds when they took out the policy, the Court concluded that the insureds had not suffered any prejudice.
The Court also noted that it was probable that the insureds had received a complete copy of the insurance policy, including the general conditions.
In view of this assessment of the evidence, the Court concluded, contrary to the insureds’ claims, that the policy was transmitted in full to the insureds, and that they accepted the fact that it was drawn up in English. The policy was therefore fully applicable and enforceable against the insureds.
Replacement Value Indemnity
Since the insurance policy was enforceable, the conditions for the payment of the replacement value indemnity (i.e., the replacement or repair of the property within a reasonable time), should normally apply.
The Court emphasized that the replacement value clause in the insurance policy, which requires that the building and property be replaced or rebuilt within a reasonable time, was clear. Indeed, the principle behind replacement cost clauses is relatively simple. In exchange for a higher premium, the insurer undertakes to compensate the insured for the price of the new property, instead of its depreciated value on the day of the loss. The insured is thus enriched, receiving a higher value than it lost. To protect against substantial increases in the cost of replacement or repair, insurers normally make replacement value clauses subject to the requirement that repairs or replacements be carried out within a reasonable time. The policy in question was no exception and included this requirement.
In this case, even though they had already received an indemnity of over one million dollars following the loss, the insureds had still not begun rebuilding the building or replacing the property at the date of the hearing. Thus, in the absence of having rebuilt within a reasonable timeframe, or of having demonstrated that a concrete reconstruction project was underway, the Court ruled that the insureds were only entitled to the depreciated value of the building and equipment.
Claim for Reimbursement of Extrajudicial Fees
Given the delays caused by the insureds’ changes of position, the insurer also filed an Application for Reimbursement of Extrajudicial Fees under articles 51 and 342 C.C.P., seeking reimbursement of the extrajudicial fees it had to pay in connection with the insurance claim.
The insureds were accused of several unacceptable behaviours in relation to the management of the file, but the fundamental abuse that motivated the drafting of the claim for reimbursement of extrajudicial fees was the filing into the Court record of two expert reports after the file had been inscribed, without these reports having been provided for in the case protocols, and without having obtained prior authorization from the court to file them. The repetition of these actions, the insureds’ lack of consideration of the judicial protocols and their total lack of cooperation during the proceedings led the Court to conclude that they had violated both article 51 and article 342 C.C.P. and ordered them to pay Arch $25,000 as a punitive damage.
