Very recently, the Court of Quebec reminded us of the importance of asking the insured specific questions about his criminal record at the time of subscription1, even if that question was asked at the time of an earlier subscription with the same insurer concerning another risk.
In this case, the insurer of an individual who owned certain agricultural equipment refused to indemnify its insured following the total loss of that equipment, which was destroyed by an accidental fire. The insurer cancelled the policy ab initio in view of the insured’s failure to disclose a criminal conviction for the theft of agricultural fuel.
The insurance policy was placed in July 2015 and a second equipment was added in November of the same year. At the time of the July 2015 subscription, the insured was not asked any questions concerning his criminal record. At the time, the insured had no convictions, but had been charged with an offence to which he subsequently pleaded guilty on November 9, 2015. The insured never disclosed that information to his insurer.
Before he purchased this commercial insurance policy, the insured had previously placed a home insurance policy in August 2014 with the same insurer, at which time he had specifically been asked about his criminal record. The insurer therefore deemed that the insured could not be unaware that this was an important factor that might influence its assessment of the risk.
A normally provident insured and the questions of the insurer
Nevertheless, the Court of Québec found that the insured had not failed in his obligation to disclose circumstances increasing the risk or his duty to act like a normally provident insured as required by the Civil Code of Québec in Articles 2466 and 2409. The Court reiterated the various factors to be analyzed when appreciating the conduct of a normally provident insured2, which we can summarize as follows:
- The circumstances at the time of subscription: the method of communication of the information (in person, by phone, or otherwise) and the remittance of explanatory documentation about the declaration of the risk are indications of the importance the insurer ascribes to the requested information and regarding the fact that the insured was informed of what he needed to disclose;
- The purchased policy: the type of information that has to be disclosed may vary according to the type of insurance purchased, such as life insurance or property insurance, or temporary coverage versus long-term coverage;
- The experience and the characteristics specific to the insured: the fact that the insured may have previously dealt with several companies or that he often purchase this type of insurance places a greater obligation of disclosure on the insured. Similarly, the characteristics specific to the insured can influence the degree of the obligation to disclose that is incumbent on him. The Court gives the example of a doctor who has better knowledge of what he must disclose when purchasing a life insurance policy than a person who has no medical knowledge.
In this case, the Court concluded that the insured is a logger with minimal schooling who always did business with the same insurer and who has no experience with the policies of insurers. Combined with the absence of questions concerning his record when the commercial policy was purchased, the Court concluded that the insured had not failed in his obligations by not disclosing his record, even though the insurer asked those questions when he purchased the home insurance policy. It can therefore be seen that the absence of questions by the insurer when the commercial policy was placed is a determining factor in the Court’s decision to dismiss its defence.
A reasonable insurer
The Court also stated that even if it had concluded that the insured had not acted like a normally provident insured, it still would have dismissed the insurer’s defence since it had not proven that a reasonable insurer would have alleged that the policy was void ab initio
In fact, the Court emphasized that when the circumstances do not obviously establish that nullity ab initio is the appropriate penalty for the default that is raised, the insurer must prove that a reasonable insurer would have made the same decision, which necessitates the testimony of third parties familiar with the industry. In the present case, the Court found that the fuel theft conviction was not sufficiently related to the insured risk, even if such theft had served for the insured property, because the loss of the equipment was accidental. Since reasonable insurer proof was not adduced, the Court concluded that it would have rejected the insurer’s defence anyway.
Consequently, the Court of Quebec allowed the action and ordered the insurer to pay the indemnity equivalent to the value of the equipment at the time of the loss.
This decision demonstrates the importance for the insurer to question the insured fully at the time of subscription, especially about factors that could influence its appreciation of the risk to be insured. We have observed a trend in the case law where the courts are more clement toward inexperienced insureds and tougher on insurers that fail to ask enough questions at the time of subscription. In our view, this trend further increases the importance of specifically asking questions of the insured about everything the insurer considers pertinent to its decision to underwrite the risk.
1 9007-1739 Québec inc. c. Promutuel Boréale, société mutuelle d’assurances générales, 2018 QCCQ 10245.
2 These criteria are derived from the decision in G.M.A.C. Location Ltée c. Assurances générales des caisses Desjardins Inc., 2004 CanLII 12753 (C.S.).