2011 QCCA 712, 2011 QCCA 712

Unofficial English Translation Intact, compagnie d’assurances (Compagnie d’assurances ING du Canada) c. Harvey 2011 QCCA 712 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF QUEBEC No.: 200-09-006760-091 (200-17-008371-072) DATE: APRIL 11, 2011 CORAM: THE HONOURABLE J.J. MICHEL ROBERT, C.J. Q. JACQUES CHAMBERLAND, J.A. FRANÇOIS PELLETIER, J.A. INTACT INSURANCE COMPANY (previously known as ING Insurance Company of Canada) APPELLANT – INCIDENTAL RESPONDENT - Defendant v.

JACQUES HARVEY RESPONDENT – INCIDENTAL APPELLANT - Plaintiff and HALLÉ, COUTURE ET ASSOCIÉS LTÉE IMPLEADED PARTY - Defendant JUDGMENT [ 1 ] THE COURT: On the appeal, and the incidental appeal, from a judgment of the Superior Court, District of Quebec (the Honourable Mr.

Justice Étienne Parent), rendered on June 19, 2009, that partially allowed the respondent’s action and condemned the appellant to pay him $47,584.80, with interest, additional indemnity and costs; [ 2 ] After having examined the file, heard the parties and on the whole deliberated; [ 3 ] For the reasons of Chamberland J.A., with which Robert C.J.Q. and Pelletier J.A. agree: [ 4 ] ALLOWS the appeal; [ 5 ] SETS ASIDE the judgment a quo, by substituting, at paragraph 112 of the judgment, the condemnation of $47,584.80 by a condemnation of $35,648.02, the other conclusions of the judgment remaining unchanged; [ 6 ] Without costs, while CONFIRMING that the extrajudicial fees that counsel for the respondent is entitled to receive from the appellant are $7,000; [ 7 ] DISMISSES the incidental appeal, without costs.

J.J. MICHEL ROBERT, C.J.Q. JACQUES CHAMBERLAND, J.A. FRANÇOIS PELLETIER, J.A. Mtre Jean-François Pichette LANGLOIS, KRONSTRÖM For the appellant – incidental respondent

Mtre Bernard Roy For the respondent – incidental appellant Date of hearing: March 8, 2011 REASONS OF CHAMBERLAND, J.A. [ 8 ] This appeal primarily raises the question of whether an insurer may set up against its insured the fact that he is underinsured so as to obtain, in the event of partial loss, a proportional reduction of its obligation to indemnify, according to the rule set out in

article 2493 CCQ , in the absence of any reference to this

article in the insurance contract.

The context [ 9 ] The facts are not in dispute. [ 10 ] On June 11, 2004, the respondent’s house, insured by the appellant (at that time known as ING Insurance Company of Canada), suffered water damage caused by a rupture of the plumbing fixtures. [ 11 ] At that date, the house had been under renovation since its acquisition by the respondent in March of 2004. [ 12 ] The appellant refused to indemnify the respondent, alleging that the house was vacant when the loss occurred. [ 13 ] Faced with this refusal, the respondent instituted an action against his insurer and his insurance broker, Hallé, Couture et Associés ltée, claiming payment of the damage caused to the building, the resulting loss of rent and damages for trouble and inconvenience. [ 14 ] In appeal, it is common ground that, contrary to what the appellant argued at trial, the house was not vacant within the meaning of the insurance policy and that, accordingly, the damage sustained by the building was covered. [ 15 ] The difficulty lies elsewhere. [ 16 ] The respondent’s house was insured for $175,000.

Following the loss, Benoît Hamel, the appraiser retained by the appellant, estimated the total replacement cost, including taxes, at $290,000 and its depreciated value, at $232,000. [ 17 ] The house was therefore underinsured and, according to the appellant, the proportional indemnity rule provided in

article 2493 CCQ applied because the loss was partial. [ 18 ] The trial judge ruled that the provisions of the insurance policy did not allow the appellant to set up against its insured the inadequacy of the amount of insurance because the policy contained neither a reference to

article 2493 CCQ , nor a clause providing for payment of proportional indemnity in the event of underinsurance. He accepted Mr. Hamel’s valuation of the cost of the repairs ($54,000, plus a few other items, for a total of $60,731, less depreciation (20%) and deductible ($1,000), namely $47,584.80). Finally, he dismissed the respondent’s application for loss of rent and for trouble and inconvenience. [ 19 ] On August 20, 2009, my colleague Vézina J.A. allowed the insurer to bring an appeal concerning the application of

article 2493 CCQ while taking note of its undertaking to pay the respondent $7,000 as extrajudicial fees [ translation ] “regardless of the outcome of the appeal”, but [ translation ] “without limiting the discretion of the panel that will decide the matter to award a larger amount”. [ 20 ] The appellant seeks the application of the proportional indemnity rule, even though the insurance policy does not refer expressly to

article 2493 CCQ , which would reduce the indemnity to which the respondent is entitled to $35,648.02 (namely 175 / 232 X $48,584.80 = $36,648.02, less the $1,000 deductible). [ 21 ] On September 1, 2009, the respondent brought an incidental appeal. He seeks to increase the amount of the damages, arguing that the trial judge made a palpable error by accepting the $40-an-hour rate in his valuation of the cost of the repairs. He also argues that the judge erred by dismissing his claim for loss of rent and for trouble and inconvenience.

Finally, he argues that he is entitled to extrajudicial fees considerably higher than those already offered by the appellant ($7,000). [ 22 ] On February 5, 2010, the respondent abandoned his incidental appeal against the insurance broker. Questions at issue [ 23 ] The appeal brought by the insurer raises only one question: may an insurer set up against its insured the fact that he is underinsured so as to obtain, in the event of partial loss, a proportional reduction of its obligation to indemnify, according to the rule set out in

article 2493 CCQ , in the absence of any reference to this

article in the insurance contract? [ 24 ] The incidental appeal raises three questions: 1) Did the trial judge err in determining that an hourly rate of $40 was reasonable for calculating the damages? 2) Did the trial judge err in dismissing the respondent’s application for loss of rent and for trouble and inconvenience?

3) Are there grounds to grant the respondent extrajudicial fees greater than those that the appellant undertook to pay, regardless of the outcome of the appeal, when leave to appeal was granted? If so, what should the amount of the additional fees be? Proportional indemnity,

article 2493 CCQ [ 25 ] The provisions of the insurance policy that are relevant to the analysis of the first question are as follows: [ translation ] TERMS OF PAYMENT We pay, per loss , an indemnity corresponding to the damage covered, without, however, exceeding your interest in the affected property or the applicable amount of coverage. The amounts of coverage are not reduced by the amount of indemnity paid; you will therefore continue to be covered, after each loss , for the same amounts as before. Under this insurance policy, only the designated Insured is entitled to take legal action against us. 1.

DEDUCTIBLE Unless otherwise stated, you will be responsible for the amount of the deductible stipulated in the Special policy conditions . 2.

RESIDENTIAL BUILDING (EXCEPT MOBILE HOMES AND SECONDARY RESIDENCES) AND APPURTENANCES In the event of damage to the residential building and to the appurtenances , if you decide to repair or replace the damaged or destroyed building or appurtenances, we will indemnify you according to one of the two alternatives below, namely: 2.1 Value on the day of the loss 2.2 Replacement value : This is the cost of reconstructing the residential building and its appurtenances or, if it is lower, that of their repair, without deduction for depreciation, up to the amount of coverage.

Replacement value depends on the following conditions: 2.2.1 Repairs or reconstruction shall be carried out with materials of similar quality, on the site of the damaged building and within a reasonable period after the loss ; 2.2.2 The occupancy of the building shall be the same as it was before the loss ; 2.2.3 In all cases, we will indemnify you only in the proportion existing between the amount of coverage and 80% of the replacement value on the day of the loss , without exceeding the actual cost of the work.

If you are not entitled to the replacement value, the settlement will be limited to the value on the day of the loss . 3. BUILDING CONSISTING OF A MOBILE HOME OR SECONDARY RESIDENCE Damage to the building is covered on the basis of the value on the day of the loss . 4. MOVABLE PROPERTY Damage to movable property is covered on the basis of the value on the day of the loss. 5.

VALUE ON THE DAY OF THE LOSS The value on the day of the loss is established as a function of the replacement cost less a deduction for depreciation, which is determined by, among other things, the condition of the property, its resale value and its normal lifespan. GENERAL PROVISIONS This contract is governed by the Civil Code of Québec . References to Quebec articles accompanying certain provisions are given only for information purposes and without guarantee of direct quotation. For all coverage, except when inapplicable. … INDEMNITY AND TERMS OF SETTLEMENT 15.

BASIS FOR SETTLEMENT (Articles 2490 and 2491) (applicable only to property insurance)

Except as may otherwise be provided, coverage is limited to the value of the insured property on the day of the loss and the value is determined in the ordinary manner. In unvalued policies, the amount of insurance is not evidence of the value of the insured property. In valued policies, the agreed value makes complete proof, between the insurer and insured, of the value of the insured property. [ 26 ] It is common ground that, under his insurance contract, the respondent was entitled to the [translation] “value on the day of the loss” of the damage, rather than the [translation] “replacement value”. [ 27 ]

Article 2493 CCQ reads as follows: The insurer may not refuse to cover a risk for the sole reason that the amount of insurance is less than the value of the insured property. In such a case, he is released by paying the amount of the insurance in the event of total loss or a proportional indemnity in the event of partial loss. [ 28 ] The trial judge concluded that, in this case, the insurer could not set up against its insured the inadequacy of the amount of insurance – $175,000 versus $232,000 – to obtain a proportional reduction of the indemnity because the insurance contract made no reference to

article 2493 CCQ , nor did it contain a clause stating the rule set out in that article. [ 29 ] With due respect for the trial judge, I believe that an error has been made. [ 30 ] Underinsurance occurs when the amount of insurance, on the day of the loss, is less than the value of the property on that same day. [ 31 ] Pursuant to

article 2493 CCQ , underinsurance creates difficulties only in the event of partial loss. In such a case and [translation] “to respect the principles of mutuality inherent in insurance” , [1] the insured will be entitled only to an indemnity proportional to the amount of insurance in relation to the value of the property. [ 32 ] As Professor Lluelles explains in Précis des assurances terrestres : [2] [ translation ] Underinsurance at the time of a loss may be due to undervaluation by the insured when the contract was entered into, or to an upward variation during the term of the contract.

Underinsurance creates difficulties only in the event of partial loss . In the event of total loss, the insured will be entitled to the amount of the loss, up to the amount of insurance (in our example $100,000) and will not be indemnified for that portion of the damage exceeding the amount of insurance (the second $100,000 will be his responsibility). It was up to the insured to increase the amount of coverage. As for mutuality, it suffers no prejudice. In the event of partial loss, however, underinsurance creates a problem.

In our example, if the insured suffers only $80,000 of damage, it is not normal that he receive this entire amount, even if it is less than the amount of insurance of $100,000. In fact, if the insured had correctly valued the immovable at $200,000 or if, in the event of a variation during the contract, he had informed the insurer of the increase, the amount of insurance would have been $200,000 and is highly likely that the rate of premium would have been double. To pay $80,000 to the insured would therefore not take into account the interests of mutuality, whose coffers have thus been underfunded.

For this reason, insurers usually include a penalty clause in their policies, especially in the

section on fires. This proportional indemnity clause, commonly referred to as a “co-insurance clause”, imposes on the client the obligation to maintain, as the minimum amount of insurance, an amount equivalent to the value of the property or a percentage of this value.

In the event of a breach of this undertaking, the indemnity will be established as a function of the ratio of the amount insured over the required minimum amount, according to a rule of three: Indemnity = Amount of insurance X amount of partial loss Required minimum amount of insurance In our example, this means, in the case of a 100% required minimum, indemnity of $40,000 and in the event of an 80% required minimum, indemnity of $50,000.

Before the 1991 Code, the proportionality rule was not, contrary to French law, provided by law: it therefore applied only if it was stipulated in the contract. (references omitted) [ 33 ] According to the authors,

article 2493 CCQ does more than merely recognize a practice; it also raises the proportional indemnity rule in the event of underinsurance to the rank of a standard. Henceforth, a clause eliminating it, or amending it to grant more rights to the insured, is necessary if the insured is to be exempt from its application. [ 34 ] In Précis des assurances terrestres , Didier Lluelles wrote at pages 363 and 364: [3] [ translation ]

The new provision does not merely recognize a practice. It goes further, raising this practice to the rank of a standard. Henceforth, proportional indemnity will be the rule. Even if it is not stipulated, the insurer will be entitled to it. A clause expressly eliminating it will be necessary for the insured to be exempt from it ( cf CCQ, art 2414, para 1). Paradoxically, hereafter it will be in the insured’s interest to insist on a co-insurance clause.

Indeed, without a special clause, the indemnity will have to be established on a full pro rata basis: in our example, the insured would be entitled to $40,000, or half of the loss, with that half corresponding to the ratio between 100% of the value of the immovable ($200,000) and the amount of insurance ($100,000). It will therefore be in the insured’s interest to obtain a clause providing for partial pro rata, based on 80% of the value, for example, which will entitle him to $50,000! This is a possibility that the Code does not prohibit, given the general relative public order (CCQ, art 2414, para 1). [ 35 ]

Article 2414 CCQ gives all the provisions of the

chapter on insurance the status of relative public order: Any clause in a non-marine insurance contract which grants the client, the insured, the participant, the beneficiary or the policyholder fewer rights than are granted by the provisions of this

chapter is null. Any stipulation which derogates from the rules on insurable interest or, in liability insurance, from those protecting the rights of injured third persons is also null. [ 36 ] Therefore, the rules set out in the

chapter on insurance may not be the subject of a contrary contractual clause unless they are advantageous to the applicant, the insured, the participant, the beneficiary, or the policyholder. [4] Any clause that grants such persons fewer rights than are granted by the provisions of the

chapter on insurance is null. [ 37 ] The rules set out in the

chapter on insurance are therefore, as of right, part of the insurance contract. [ 38 ] The insurance contract is a nominate contract: it is governed by the CCQ. [ 39 ] Professor Jobin says of nominate contracts that they [translation] “are easier to interpret because, when the parties have not provided in their agreement the rule applicable to a problem that arises, it is more often than not enough to refer to the texts of the Civil Code or of another act to find therein the additional elements of their intent and to resolve their dispute in this way”. [5] [ 40 ] Professors Lluelles and Moore say that the interest of the nominate contract lies in the ease with which it can be drafted: [translation] “The parties may merely agree on essential matters, it being understood that the secondary issues will be resolved by a provision of the legislative text specifically applicable to the contract ”. [6] [ 41 ] The rule set out in

article 1434 CCQ applies to the insurance contract (art. 1377 CCQ ). Persons who conclude such a contract are therefore obligated not only by what they express in it, but also by everything arising from it by law. The public order provisions in the

chapter on insurance, including the proportional indemnity rule in the event of underinsurance, are therefore part of the obligational content of an insurance contract, even in the absence of a cross-reference clause (unlike external clauses). [7] [ 42 ] The rule set out in

article 2493 CCQ is not one of the elements that the legislator requires an insurance policy to state expressly. [ 43 ] Thus,

article 2480 CCQ requires that an insurance policy state the conditions for cancellation of the contract by the insured, even though they are set out in

article 2477 CCQ Similarly,

article 2470 CCQ requires that an insurance policy contain a clause providing for forfeiture of the right to indemnity so that the insurer may set up such a sanction against an insured who breaches his or her obligation to report any loss that could jeopardize the coverage, as soon as he or she becomes aware of it. [ 44 ]

Article 2493 CCQ is not worded in such a way as to require that the rule stated therein be incorporated into the insurance policy for the insurer to avail itself of it. This legislative choice is probably due to the raison d’être of the rule, namely respect for the principles of mutuality inherent in insurance. Where there is underinsurance, payment of full indemnity to the insured in the event of partial loss would not take into account [translation] “the interests of mutuality, whose coffers have thus been underfunded”. [8] [ 45 ] Pursuant to

article 2493 CCQ , the respondent is entitled, in this case, to 175 / 232 of his loss, namely $36,648.02, less the $1,000 deductible. The indemnity payable is therefore $35,648.02. The judgment appealed from will have to be corrected accordingly, subject of course to the questions that the respondent raises in his incidental appeal. The hourly rate [ 46 ] The trial judge addressed the hourly rate to be applied in assessing the damages as follows: [ translation ] [86] The expert Marquis suggested a rate of $50 an hour, which comes from the Construction Decree.

He admitted that the Decree does not apply to residential renovation. [87] Both experts agreed on the shortage of labour, in both 2004 and 2007, when the expert Marquis did his valuation. In the opinion of the Court, this scarcity justifies the use of an hourly rate that is higher than the $20 proposed by ING, but not as high as that provided in the Construction Decree. [88] The court finds that an hourly rate of $40 is reasonable for the purpose of calculating the damages.

During the hearing, the expert Hamel agreed that, in applying the hourly rate of $40 to his estimate, the repair costs, before depreciation, were about $54,000. [ 47 ] The respondent sees no palpable error in this reasoning. There is no evidence in the record to support the argument that an hourly rate of $50 would be more appropriate. This is a factual issue that the trial judge decided. The respondent has not demonstrated

any palpable and overriding error that, in my opinion, would justify the Court’s intervention in this regard. Loss of rent and claim for trouble and inconvenience [ 48 ] The trial judge dealt with this matter in the following terms: [ translation ] [104] The applicant claims loss of rent. [105] The Policy does not provide for indemnity in the event of loss of rent. The claim is therefore excluded from this standpoint. [106] In addition, the Court believes that the request also cannot be granted on the basis of faulty performance of ING’s obligations.

Indeed, the plaintiff had to mitigate the damage by carrying out his work as quickly as possible in order to be able to rent the apartment and rooms that he had planned to build therein. [107] The applicant may not cite his financial problems to justify his claim. [108] In this regard, it is surprising that the applicant alleges such difficulties, because he bought the residence without financing. [109] The same comments apply to the request for compensation for general damages, which are not part of the insurance coverage provided by ING. [110] Moreover, the insurer’s actions in this matter do not justify such a condemnation. [ 49 ] In my opinion, the judge’s analysis is without fault.

The respondent was not insured for loss of rent and the appellant did not act toward him in a way that would justify the claim on an extracontractual basis. The same comment applies to the general damages that the respondent is claiming. [ 50 ] This leaves the question of extrajudicial fees. Additional extrajudicial fees [ 51 ] I would like to reiterate the context. On August 20, 2009, Vézina J.A. allowed the insurer to appeal concerning the application of

article 2493 CCQ The amount of money in play is not significant ($35,648.02 versus $47,584.80), but the question is of interest because it affects the processing of a number of files of the same nature that are part of the appellant’s operations and probably those of several other insurers. The appellant thus undertook to pay the respondent $7,000 in extrajudicial fees [translation] “regardless of the outcome of the appeal”.

Vézina J.A. took note of this undertaking [translation] “without limiting the discretion of the panel that will decide the matter to award a larger amount”. [ 52 ] The respondent is now asking for $41,762.44, including disbursements and taxes. He cites the undertaking made by the appellant on August 20, 2009, as well as

section 15 of the Tariff of judicial fees of advocates . [9] The appellant objects to this application; it argues that the evidence adduced in support of the request was insufficient, that the amount sought is clearly exaggerated and, lastly, that it cannot be liable for the fees incurred with respect to the incidental appeal. [ 53 ] I agree with the appellant. The fees that it undertook to pay regardless of the outcome of the appeal – and that it paid out in two equal amounts on October 22, 2009, and March 15, 2010 – are sufficient. The appeal brought by the appellant raised only one, narrowly focused question.

The coverage was of definite interest to the appellant and probably to other insurers, but it was not particularly complex. The appellant was right to say that it cannot be liable for the fees undertaken by the respondent with respect to the incidental appeal that he decided to bring. [ 54 ] On March 14, 2011, counsel for the respondent sent the members of the panel the statements of account that he had submitted to his client (August 27, 2009, and March 16, 2010) or that he planned to submit to him (draft invoice of March 10, 2011).

I do not intend to do a detailed analysis of them as part of these reasons, but I believe it is fairly clear that many hours were dedicated to the study of matters that were entirely foreign to the problem that the appellant brought to the attention of the Court.

I am thinking here of the motion to order the appellant to have transcribed, at its expense, all the evidence adduced during the trial, a motion that was dismissed on November 18, 2009; all the steps regarding the appeal brought against the insurance broker, and which the respondent finally abandoned on February 5, 2010; and, lastly, the time dedicated to the incidental appeal, the preparation of the memorandum of appeal, and the hearing. [ 55 ] Finally, examined from the standpoint of

section 15 of the Tariff , in my opinion the file did not raise an especially serious, complex, or unusual question that justified a special fee.

In brief, the question was interesting, but not enough to make it “an important case” justifying a special fee within the meaning of the Tariff and the relevant case law. [10] [ 56 ] For all these reasons, I would allow the appeal brought by the appellant, set aside the judgment appealed from by substituting, at paragraph 112 of the judgment, the condemnation of $47,584.80 by a condemnation of $35,648.02, without costs, while confirming that the extrajudicial fees that counsel for the respondent is entitled to receive from the appellant are $7,000.

I would also dismiss the incidental appeal without costs, given the circumstances.

JACQUES CHAMBERLAND, J.A.