A recent Superior Court ruling examining the basic principles that apply to the nullity ab initio of an insurance policy highlights yet again the crucial role of the claims adjuster.
Nullity ab initio
Insurance contracts require the utmost good faith between the parties. To assess the risk, the insurer needs the insured to disclose all the facts known to him that could influence how an insurer sets the premium, appraises the risk or decides to cover said risk1. This is a positive obligation for the insured, meaning that even if he is not questioned, the insured must declare any information likely to influence the insurer’s decision regarding underwriting the risk or setting the insurance premium. The insured must act such as a normally provident insured would act under the same circumstances.2.
In certain cases, the insured’s failure to respect his obligation to disclose may result in the insurance policy being declared void ab initio at the request of the insurer, which could lead to serious consequences for the insured.3.
The court will impose this civil liability penalty if the insurer proves the following:
- the insured omitted and/or concealed information;
- the insurer would not have issued the insurance policy, had it not been for the insured’s omissions and/or concealment;
- under the same circumstances, any reasonable insurer would have also refused to insure the risk.
To discharge its heavy burden of proof, the insurer must demonstrate a “connection between the circumstances and the risk covered."5. [unofficial translation]
If the insurer meets its burden of proof, it will then be up to the insured to demonstrate that he acted as a “normally provident insured.”6.
Laporte v. Intact, compagnie d’assurances7
CThis ruling came in the wake of a fire that destroyed the home of Intact’s insured, Jimmy Laporte (hereinafter “the insured”). All that was left after the fire were the home’s foundations and part of the garage. Fire damage was assessed at $359,651. After conducting its investigation, Intact (hereinafter “the insurer”) refused to indemnify the insured.
The insurer plead the intentional fault of the insured, arguing that he had been involved in the arson. It also raised several issues to demonstrate that the insurance policy is null and void, including:
1) the fact that the insured kept cannabis in his home for the purposes of trafficking;
2) the insured’s ties to organized crime, since his father has a criminal past; and
3) the false documents the insured submitted to his mortgage creditor to secure a mortgage.
The insurer claimed that it would have refused to underwrite the risk had it been made aware of these issues, and that its decision to void the insurance policy ab initio is justified.
With respect to the insurer’s argument based on the intentional fault of the insured, the court ruled that the fire was indeed arson, since the fire chief had indicated that the fire spread quickly due to the presence of accelerant. A road flare was also found in the residence. However, although the post-loss investigation and the hearing on the merit of the case revealed troubling information regarding the insured’s entourage, the Court concluded that, due to a lack of conclusive evidence, the insurer did not prove any connection between the insured and the fire.
Regarding the nullity ab initio of the insurance contract, the Court did not agree that the “moral” hazard of cannabis trafficking constituted valid grounds for determining that the policy was null and void. In fact, the cannabis was found outside the insured’s residence and the latter was acquitted of drug trafficking accusations. The facts presented to the Court did demonstrate that the insured committed a criminal act.
With respect to the insured’s father’s criminal history, the Court ruled that the insured could not be blamed for his father’s past. The Court therefore did not accept this ground as justification for voiding the policy.
What remained was the insurer’s argument regarding the documents the insured had provided in support of his application for a mortgage. Here, the evidence showed that false documents were submitted to the lender, in particular, a certificate of employment. This information was gathered by the claims adjuster following the fire.
In his defence, the insured testified that he had neither filled in nor signed these documents himself. However, he admitted that the certificate of employment he provided in support of his mortgage application was false.
The Court believed that the documents were false and that the insured should have been aware of their content. The Superior Court concluded that securing a mortgage under false pretences included in false documents was relevant information that could have influenced the insurer’s decision to underwrite the risk.
Finally, the court stated that the fact that the insured submitted false documents in support of his application for a mortgage constituted valid grounds for determining the nullity ab initio of the insurance contract.
Information Gathering and the Role of the Claims Adjuster
At the time of underwriting, the insurer does not necessarily conduct an in-depth investigation of the insured, and essentially relies on the insured’s good faith.
That said, Laporte v. Intact, compagnie d’assurances shows that certain information obtained outside of the standard underwriting process may be relevant to analysing the risk. It is also clear that the claims adjuster’s investigation plays an important role. His investigation may in fact reveal relevant information that could have influenced the insurer’s assessment of the risk. Evidence obtained by the claims adjuster can be validly presented in support of a request to void ab initio an insurance contract, where applicable. It is therefore well worth repeating that the claims adjuster can play a crucial role in such situations.
An insurer that wishes to invoke the nullity ab initio of an insurance contract bears a heavy burden of proof. The insurer must show that concealment of information or misrepresentation on the part of the insured could have had a bearing on whether the risk was underwritten or not.
During his investigation, the claims adjuster may obtain information showing that the information the insured concealed or omitted to disclose could have influenced how a reasonable insurer under the same circumstances would have appraised the risk. These crucial findings may justify the nullity ab initio of the insurance policy. Laporte v. Intact, compagnie d’assurances demonstrates that it is sometimes useful and necessary for a claims adjuster to conduct an in-depth investigation to uncover sufficient information to invoke nullity ab initio.
Civil Code of Québec, CQLR c CCQ-1991, sec. 2408. (“CCQ”).
2.CCQ, sec. 2409.
CCQ, sec. 2410.
4. See, inter alia,
Dubois v. Compagnie mutuelle d’assurances Wawanesa, 2015 QCCS 3238.
5.Compagnie mutuelle d’assurances Wawanesa v. GMAC Location ltée, 2005 QCCA 197, par. 28 ;
H. & M. Diamond Ass. inc. v. Optimun assurance générale agricole inc.,  R.R.A. 828 (QCCA), p. 4.
CCQ, sec. 2409.
Laporte c. Intact, compagnie d’assurances (Axa Assurances inc.), 2016 QCCS 3922 (Statement of Appeal , 2016-09-21 [QCCA] 500-09-026347-161).
Me Léonie Gagné and Me Jonathan Lacoste-Jobin, Lawyers at Lavery, de Billy, LLP