Home > Resource Centre > Publications > Publication

The extent of the duty that a client has to disclose information relevant to the risk when making an initial declaration has given rise to much litigation in the insurance industry. The Quebec Court of Appeal recently ruled twice on clients' obligation to disclose a criminal record to the insurer when purchasing car insurance. In these rulings, the Court established several principles that could easily be applied to any situation where the insured must make a similar declaration.

In the first case, Compagnie mutuelle d'assurances Wawanesa c. GMAC Location ltée,[1] the insured signed a long-term car lease agreement on March 11, 1999, which was then assigned by the dealership to GMAC Leaseco. The same day, the insured contacted a representative of The Wawanesa Mutual Insurance Company to insure the vehicle. The representative asked him a few questions related to driving, in particular how many accidents he had had in the previous six years, whether he had ever been convicted of impaired driving, whether his driver's licence had ever been revoked or suspended, etc. She did not ask him whether he had a criminal record.

As it turned out, the insured had been convicted of several crimes between 1980 and 1991, viz., breaking and entering, possession of an instrument suitable for breaking and entering, theft, possession of property obtained by crime, abetting in fraud, identity theft, fraud, possession of drugs, refusal to comply with a probation order, etc.[2]

At the end of November 2000, the insured had an accident; his car was a total loss. In response to his claim for compensation, Wawanesa conducted an investigation, during which the insured's criminal record came to light. Wawanesa advised the insured that he had failed in his duty to inform when he made his initial declaration and that his policy was therefore null ab initio. Wawanesa refunded him the premiums he had paid. GMAC then sued Wawanesa because it had refused to pay compensation.

At the hearing, Wawanesa argued that individuals with a criminal record are a moral hazard it does not wish to assume, as it considers the associated risk impossible to assess. Certain employees of Wawanesa and other insurers testified to that effect. The trial judge agreed with GMAC, expressing the opinion that the insured could not have known that his criminal record, which had nothing to do with driving a car, would affect acceptance of the risk. He further questioned the significance or relevance of a criminal record to the insurance contract concluded.

The case went to the Court of Appeal. The Honourable Mr. Justice Pierre J. Dalphond wrote the reasons for judgment, with which the other two judges concurred.[3] Dalphond J. maintained that the legislator had intended to balance the interests of the insurer and the insured when it enacted Articles 2408 and 2409 of the Civil Code of Québec. Article 2408 C.C.Q.[4] imposes upon the insurer the onus of proving that the information omitted was such as to influence a reasonable insurer, while Article 2409 C.C.Q.[5] imposes upon the insured the obligation to prove, once the insurer has discharged its burden of proof, that he acted as a "normally provident insured" would have done. The judge then applied a twofold test.

Dalphond J. concluded that the insurer did, in fact, prove that a reasonable insurer would have considered the insured's participation in crimes such as theft, receiving of stolen goods and fraud relevant in assessing the risk that a fraudulent claim would be made.

In applying the second part of the test, the judge took the time to define the concept of a "normally provident insured," referred to in Article 2409 C.C.Q. He referred to a series of criteria contained in an article by Professor Patrice Deslauriers and more particularly the criterion of the client's experience and characteristics. The judge applied this criterion to the facts of the case and maintained that a reasonable person who was not familiar with the insurer's policies would not have thought it relevant to disclose his criminal record, given that his criminal offences were unrelated to the driving or possession of a car and that a certain amount of time had elapsed since the last conviction. Dalphond J. further stated that the questionnaire used at the time confirmed this assumption for two reasons. First of all, a reasonable person questioned about certain types of convictions would have concluded that the insurer was not interested in other types of convictions. Second, a reasonable person would have concluded that the insurer was not interested in any offences dating back more than eight years and unrelated to the driving or possession of a car, given that one of the questions was about the existence of any claims in the previous six years.

The judge concluded that the mere existence of a questionnaire could attenuate the client's duty to inform. He further stated that insurers who do not wish to insure individuals with a criminal record should clearly ask clients whether or not they have one. The judge found it unacceptable for an insurer who does not ask any questions about a client's criminal record, other than driving-related offences during a certain period of time, to collect premiums for a while and then, once a claim arises, conclude that the policy is void.

The message is thus quite clear: Insurers who do not wish to insure individuals with a criminal record are strongly advised to include a clear question in that regard on the application form.

Another judgment[6] rendered on the same day by the same panel of judges, the reasons for which were also written by Dalphond J., shed even more light on the extent of a client's duty to inform. Once again, the insurance broker did not ask any questions about the client's criminal record when the client contacted him to insure a newly acquired car. Moreover, Mr. Bergeron, the client, received an insurance application form containing the following questions:

[Translation] Article 13 a): Please indicate any CONVICTIONS under the Highway Safety Code or the Criminal Code involving the client as the user of a car during the last 3 years.

Article 13 b): Please indicate any CLAIMS involving the applicant as the owner or user of a car during the last SIX years. [our emphasis]

Less than one month after the policy took effect, the insured vehicle caught fire while the insured's mother was driving it. The fire seemed to result from a mechanical defect. The insurance company investigated and discovered that the insured had a serious criminal record:

October 1984, conspiracy to commit theft and theft of a car (sentenced to a fine of $15,000.00 and three years of probation); December 1995, receiving stolen car parts (sentenced to a fine of $5,000.00); July 1996, receiving stolen car parts (sentenced to a fine of $1,000.00 and 1 year of probation); July 1998, receiving a stolen container (sentenced to a fine of $2,000.00).[7]

In light of the insurer's refusal to indemnify him, Mr. Bergeron sued the insurer for $25,000 even though it was established that the vehicle was worth only about $7,000.

The trial judge dismissed the case, as he was of the opinion that the lack of a specific question on the client's criminal past did not exempt the insured from his obligation to disclose it to the insurer, given that his criminal record was related to the risk the insurer intended to insure.

The case came before the Court of Appeal. With respect to the first part of the test, Dalphond J. concluded that the insured's previous convictions were relevant to assessing the risk. In the second part, the judge noted that one merely needs to ask whether a reasonable person, in the same situation as the insured, would have thought that he or she needed to disclose the information that had been omitted. The judge did not think so, given that the question asked in section 13a) of the application was so specific. The question referred only to offences committed as the user of a vehicle over a clearly defined period of time, that is, the previous three years. A reasonable person could thus have concluded that the insurer was interested only in those and no other offences. The judge was once again of the opinion that the insured's residual duty to inform had been qualified by the insurer's questionnaire.

The judge finally stated that it had not been established by a preponderance of evidence that the insured's excessive claim for the loss of the vehicle constituted attempted fraud, given the special characteristics of the car in question. The appeal was thus allowed and the insurer condemned to pay Mr. Bergeron an indemnity of $7,000.

This case demonstrates even more clearly the importance of properly wording the questions in the application form. Based on the circumstances of this case, it is obvious that the questionnaire qualifies the insured's duty to inform.

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed.

[1].    J.E. 2005-429 (C.A.), 2005 QCCA 197.

[2].    Excerpt from paragraph 9 of the judgment.

[3].    The judges in question were Justices Marc Beauregard and François Doyon.

[4].    This article reads as follows: "2408. The client, and the insured if the insurer requires it, is bound to represent all the facts known to him which are likely to materially influence an insurer in the setting of the premium, the appraisal of the risk or the decision to cover it, but he is not bound to represent facts known to the insurer or which from their notoriety he is presumed to know, except in answer to inquiries."

[5].    This article reads as follows: "2409. The obligation respecting representations is deemed properly met 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."

[6].    Bergeron c. Lloyd's Non-Marine Underwriters, J.E. 2005-430, 2005 QCCA 194.

[7].    Facts taken from paragraph 13 of the judgment.

 Back to Publications

Contacts

Hélène Lefebvre
Montréal
514.847.4457
hlefebvre@ogilvyrenault.com
Profile

André Legrand
Montréal
514.847.4412
alegrand@ogilvyrenault.com
Profile

Jean-François Michaud
Montréal
514.847.4722
jmichaud@ogilvyrenault.com
Profile

Jean-Charles René
Montréal
514.847.4609
jrene@ogilvyrenault.com
Profile