In January 2010, a fire broke out in a building where Dre Brigitte Roy (hereinafter the “Insured”) operated her dental clinic. At the time of the fire, the clinic held a property and business interruption insurance policy subscribed at L’Unique Assurances Générales inc. (hereinafter “L’Unique “).
In connection with the processing of the Insured claim following the fire, L’Unique empowered the claim adjuster Yves Luc Perreault (hereinafter “Perreault “), who, as early as March 2010, made a mistake in his assessment of the clinic’s business interruption loss: he confused the monthly business interruption losses, appraised at $10,000, with the weekly losses for the same amount. As it did not notice Perreault’s mistake, L’Unique followed his recommendations and paid to the Insured greater benefits than those she would have been entitled to have. In December 2010, Perreault became aware of his mistake while the Insured had already been paid $280,000 as business interruption losses by means of checks issued between February and October 2010. In fact, the business interruption loss was actually established at $63, 775.
Superior Court judgment
After the mistake was discovered and in the absence of any support from the Insured with regards to how the overpayment could be settled, L’Unique initiated proceedings before the Superior Court against the Insured as well as against Perreault and his firm asking for the repayment in solidum of $216, 225 as overpaid benefits. The Insured challenged the claim pleading that the overpayments resulted from an inexcusable error of Perreault and L’Unique, and furthermore argued that the remedy sought by L’Unique was partially prescribed.
In her decision rendered on August 28, 2017, Justice Anne Jacob held that $216,225 in benefits were effectively overpaid by L’Unique because of the inexcusable error of Perreault’s recommendation to pay on a weekly, rather than monthly, basis a $10,000 indemnity, an error that was moreover repeated in several occasions. In so doing, Perreault committed a contractual fault towards L’Unique as well as an extracontractual fault against the Insured. The trial judge also determined that L’Unique committed an inexcusable error towards the Insured as it repeated Perreault’s error by lack of rigour and indolence constituting gross negligence.
She also pointed out that after the error was known, L’Unique and Perreault tried to shift the blame on the Insured as if she would have been in default, even it was not the case. The judge was also of the opinion that, in doing so, they both behaved in a highly reprehensible fashion. On the other hand, Justice Jacob noticed that the lack of diligence on the part of the Insured, somewhat justifiable after the error had been discovered, evolved afterwards in an absence of cooperation tainted with bad faith on her part.
Pointing out that there were two lines of authority as to whether the inexcusable error bars a claim for receipt of payment not due and restitution of prestation, the judge determined that the inexcusable error or gross negligence in the present case didn’t bar the remedy sought by L’Unique against the Insured. She however made use of her exceptional jurisdiction under Section 1699 of the Code civil du Québec (hereinafter “C.c.Q.”) to disallow the full restitution and hence avoid [translation] “giving an undue advantage to one party especially since prior to the end of their relationship, the parties engaged in a behaviour tainted with bad faith in order to avert the consequences of the error at sake.” Considering that the three years limitation period applied to each of the payments made rather than to the date the error was discovered, the judge ordered the Insured to reimburse the last check of $70,000 issued in October 2010 and leaved L’Unique and Perreault sharing in equal part the residual balance of $146, 225 by reason of their joint inexcusable error.
Court of Appeal decision
The Insured appealed Justice Jacob’s decision while L’Unique filed an incidental appeal.
In an unanimous decision, the Honorable Justices Louis Rochette, Patrick Healy and Simon Ruel settled the academic and jurisprudential debate as to whether the inexcusable error bars a claim for receipt of payment not due and restitution of prestation. According to them, the inexcusable error concept will only be considered when the parties’ consent is challenged, but only at the formation of the contract. Yet, in erroneous payment matters, as in the present case, there is no error in the formation of the contract, but rather an unilateral error made by the debtor in the execution of the obligations arising from the contract. The contractual stability not being questioned, the Court held that the inexcusable error could not bar the claim of L’Unique for receipt of money not due. Hence, the trial judge’s decision was well founded in law.
As to the limitation period, the Court of Appeal restated that, in an impossibility in fact to act, time is measured as of the date the erroneous payment is made, and not as of the date the error is discovered. In the present case, L’Unique has a claim of $150, 000 that is not prescribed, as the trail judge ruled it.
Moreover, the Court of Appeal considered that the trial judge erred in law when referring to Section 1556 of the C.c.Q. to justify the failure of the integral restitution of the benefits in order to avoid causing financial harm to the Insured, since the latter no longer had possession of the money sought to be reimbursed, and that she would have had thus to go into debt to reimburse the money. The Court of Appeal reminded that the aforementioned section of the C.c.Q. does not apply to a payment made without the existence of an obligation. Yet, the payment made by L’Unique was actually made when no obligation existed towards the Insured.
That being said, the trial judge lowered the claim to $70,000 and, in doing so, she also referred to Section 1699 of the C.c.Q. as well as to the rules applying to the restitution of prestation in order not to allow the full restitution of $150,000 by the Insured to L’Unique. The Court of Appeal recognized on that specific topic that the trail judge exercised her judicial discretion as an equity measure in order to avoid that a party got an undue advantage following the restitution. Hence, while the full restitution should apply as a rule, under certain circumstances, the tribunal might disallow the full restitution, or modify its scope, if the debtor could gain an undue advantage from such an application. In the present case, the Court of Appeal held that the trial judge was conscious of the exceptional nature of her discretion and the Court considered that she exercised it sparingly with transparency since she explained the reasons why the restitution would allow L’Unique to benefit from an unjustified advantage. Hence her decision in that regard is not à unreasonable.