Reasonable expectations of the insured: recent judgments
This summary does not constitute a legal opinion. The information it contains may not reflect the current state of the law.
In the matter of Muir vs. Magog (City of)1, the Small Claims Division of the Quebec Court has reaffirmed the principle established by the Supreme Court of Canada that, in certain circumstances, “the insured’s reasonable expectations” should be taken into consideration when interpreting an insurance contract.
On September 2nd, 2013, heavy rain fell on the City of Magog (hereinafter “the City”). The plaintiffs, David Muir and Virginie Poulin (hereinafter “the Plaintiffs”), lived in the City and were the owners of an immovable located near a creek. What had to happen finally occurred: nauseous odors from contaminated water seeped through the floor drain and radiators, causing damages to Plaintiffs’ immoveable.
Initially, Plaintiffs believed that the water infiltration was caused by the overflow of the creek. However, after collecting information from their neighbors, Plaintiffs established that it was caused by the backflow of the City sewer system.
Consequently, Plaintiffs asked the City and their home insurer (hereinafter “the Insurer”), which had issued an “all risk” insurance policy to compensate them for their loss.
The Insurer denied owing any amount whatsoever, alleging that Plaintiffs’ claim was inadmissible because the damages suffered were excluded from coverage.
THE INSURER’S LIABILITY
Justice De Pokomandy recalls the well established principles pertaining to exclusions in an insurance contract:
- In the case of an “all risk” insurance policy, all of the risks that may directly impact the insured’s goods are covered except those listed in the Exclusions section. It must therefore be determined whether the exclusion invoked applies;
- It is he whom alleges the exclusion, namely the insurer, that must prove by a preponderance of evidence the facts or circumstances giving rise to the application of the exclusion;
- The exclusion clauses must be interpreted restrictively; in doubt, coverage must be applied.
The insurance policy at stake
The policy issued by the Insurer provides, at section 18:
Les pertes, dommages ou frais occasionnés directement ou indirectement par une inondation qui atteint les lieux assurés. On entend par inondation notamment les vagues, la marée, le raz-de-marée, le tsunami, la crue des eaux, la rupture de barrage, le débordement de cours d’eau ou de toute étendue ou masse d’eau naturelle ou artificielle. […] (nous soulignons)
Considering the location of their immovable, Plaintiffs initially sought additional protection from their insurance policy namely a rider for water damage (hereinafter “the rider”), which provided that they were covered for damages caused by:
- The penetration or sudden and accidental infiltration of ground or surface waters through foundations, basement walls or openings;
- A leak, a discharge or a sudden and accidental overflow of a sewer system, a ditch, a septic tank, a sump pump, a French drain, a sewage field or any other wastewater treatment system;
- Swelling of the water table.
However, this rider contained an exclusion to the effect that were not covered “water damages caused directly or indirectly to goods and occurring before, during or after a flood.“
Firstly, Justice De Pokomandy concluded that the exclusion contained in section 18 of the insurance policy didn’t apply, given that the evidence showed that water seeped into Plaintiffs’ immovable from the City sewer system and not from the creek. Thus, the damages were not caused by a flood but by a sewer backup.
The Insurer also invoked the exclusion contained in the rider. Justice De Pokomandy mentioned that according to this exclusion, which was drafted very broadly, the insurer only had to prove the occurrence of flooding to deprive policyholders of coverage for damages caused by water. According to Justice De Pokomandy, such language seems to bypass the effects sought by the rider, rendering it useless:
 L’application de la clause d’exclusion contenue à l’avenant amènerait le résultat qui ne nous semble pas conforme aux attentes raisonnables des demandeurs puisqu’ils seraient privés de couverture d’assurance pour tout dommage d’eau pour quelque raison que ce soit, par quelque cause que ce soit, dès qu’il survient avant, pendant ou après une inondation. Or leur propriété étant bornée par un ruisseau, les lieux assurés sont considérés aux termes de la police inondés à la moindre crue de ce cours d’eau.
Consequently, Justice De Pokomandy concluded that the exclusion contained in the rider goes against the reasonable expectations of policyholders, and therefore cannot be invoked by the Insurer, which is required to compensate for the damages.
The Muir decision was later cited in a judgment rendered on March 16, 2016 by Justice Claude H. Chicoine2.
In this case, Plaintiffs also sued their insurer for the damages suffered following the heavy rains of September 2nd,2013. Although the insured sued is not the same as in the Muir case, the insurance policy at study was highly similar. Justice Chicoine granted plaintiffs’ claim. Based on the judgment rendered by the Supreme Court of Canada in the matter of Consolidated-Bathurst Export vs Mutual Boiler3 , he affirmed the following in regard to the principle of the reasonable expectation of the insured:
 L’assuré s’attend à être couvert pour dommages d’eau :
a) deux avenants sont émis à cet égard ;
b) les modifications apportées à sa police le lui précisent ;
c) il a payé des primes spécifiques pour tels dommages.
 C’est ce qu’on appelle « l’attente raisonnable de l’assuré ».
 Ici, les exclusions sont tellement larges qu’elles enlèvent tout sens à la couverture pour dommages d’eau.
These recent judgments confirm the teachings of the Supreme Court of Canada to the effect that the exclusion clauses should be free from any ambiguity and that coverage should match the likely risks to which the insured is exposed. Otherwise, the Courts will not hesitate to refer to the reasonable expectations of the insured to avoid an interpretation that would allow the insurer to pocket the premium without risk.
By Me Caroline Tremblay, associate at Gilbert Simard Tremblay LLP
1. 2015 QCCQ 508.
2. Giguère vs Compagnie d’assurance Bélair Inc., 2016 QCCQ 2023 (Small Claims Division).
3.  1 S.C.R. 888. See also Cornish v. Accident Insurance Company, (1889) 23 Q.B. 453.