In the recent decision Fonds d'assurance de la responsabilité professionnelle de l’Ordre des architectes du Québec c. Syndicat de Beaucours,1 the Quebec Court of Appeal handed down one of a very few Quebec rulings on “claims made” liability insurance policies. In its decision, the Court clarifies the concept of “occurrence” for purposes of this type of policy. Although the Court’s reasons for judgment are succinct, the decision is likely to have a broad impact given that it is the first time that the Court of Appeal has addressed this question directly in the context of a claims made policy. Since the facts of this case are complex, we have summarized them in the following paragraphs.
The Appellant in Beaucours, the Professional Liability Insurance Fund of the Ordre des architectes du Québec (the “Fund”), had been providing general professional liability insurance to the architectural firm of Gilbert, Amyot, Côté, Leahy since 1988. In 1997, Gilbert left the partnership and obtained individual insurance coverage in an amount of $250,000 from the Fund. On May 31, 2001, Amyot in turn left the partnership. Leahy and Côté decided to continue practising as a partnership. Amyot, Côté and Leahy alleged that, on September 17, 2001, they had sent a letter to the Fund notifying it of the termination of the partnership and the terms of the termination which had occurred in May 2001.
On November 20, 2001, Côté was invited by chance to visit a property known as Beaucours managed by a syndicate of co-owners. The firm of Gilbert, Amyot, Côté, Leahy had prepared the plans and specifications for the property and had supervised construction in 1997 and 1998.2 At the time of his visit, Côté observed some visible but minor deficiencies which he supposed were construction defects attributable to the masonry contractor. Also in November 2001, the Fund sent to the now defunct partnership of Amyot, Côté, Leahy a renewal notice for its insurance policy, which was due to expire on December 31, 2001. The renewal notice appeared to take no account of the notice which had been sent by the partnership to the Fund on September 17, 2001 explaining that the partnership had been dissolved in the summer of 2001. Côté and Leahy sent a joint response to the renewal notice on November 28, 2001 and, in reply to a question by the Fund concerning possible claims for past work, they sent the Fund a brief notice to the effect that they were aware that the syndicate of co-owners had had an expert report prepared on the masonry of the property in question. They also declared they did not know what the results of the expert report were and added that it was a matter that concerned the contractors and owners more particularly. Meanwhile, Amyot responded to the Fund’s notice on November 29, 2001, stating that he was not aware of any potential claim for past work. The Fund received both responses on December 3, 2001 and immediately issued policy renewal certificates for the firm of Côté, Leahy providing coverage of $500,000 and for an individual policy for Amyot also providing coverage of $500,000. Both new policies were for the period from January 1, 2002 to January 1, 2003 and neither was retroactive to the date when the partners terminated their business relationship.
On December 17, 2001, the syndicate of co-owners sent a formal demand letter to the four architects holding them solidarily liable for damage caused to the property and in January 2002 the syndicate filed an action. The Fund agreed to take up the defence of the architects but specified to the insureds that it was doing so on the basis of the two insurance policies that were in force during the year 2001, that is, the single policy issued to Amyot, Côté, Leahy for $500,000 and the policy issued to Émile Gilbert personally, who had left the partnership in 1997. The Fund’s decision was initially based on its claim that the insureds had become aware of the occurrence on November 20, 2001, the date when Côté had happened to visit the Beaucours property. The Fund also claimed that even if the new insurance policies for 2002 had come into force on December 3, 2001 when the Fund received the responses to the renewal notices, the new policies could not apply to an occurrence at an earlier date which was known to the partners but had not been notified to the Fund before the policies were issued.
Mr. Justice Parent of the Quebec Superior Court dismissed the Fund’s claims and found that Côté’s observations when he visited the property on November 20 were not such as to allow him to foresee the possibility of a claim against the architects. Consequently, Côté was not obliged to give notice of an occurrence. According to Mr. Justice Parent, the fact that Côté was aware that the syndicate of co-owners was going to retain the services of an engineer was not a fact [translation] “which could give rise to damages or losses”, according to the wording of the policy issued by the Fund. Mr. Justice Parent thus ruled that the policies in force at the time of the occurrence, namely, on December 17, 2001, when the formal demand letter was received by the architects, were the ones issued on December 3, 2001 for the 2002 year.
After reviewing the facts of the matter at length, the Court of Appeal held that the new insurance policies issued by the Fund on December 3 did come into force on that date, with the result that [translation] “[they] applied to any claim made or occurrence known after that date.”3 The Court further stated that Amyot, who knew nothing at all about the defects affecting the property until he received the formal demand letter dated December 17, 2001, could not be held liable by virtue of knowledge that his former partners Côté or Leahy may have had. As for the observations made by Côté regarding the masonry defects when he visited the property on November 20, the Court agreed with the reasoning of the trial judge, who considered that they could not be construed as constituting an “occurrence” for purposes of the insurance policy. Therefore, the Court dismissed the appeal by the Fund and confirmed the trial judge’s decision.
RELEVANCE OF THIS JUDGMENT
This decision confirms, in a civil law context, certain principles that were laid down by the Supreme Court of Canada over 15 years ago in Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co.4 In that decision, which also dealt with a claims made policy, the Supreme Court ruled that “[F]or a "claim" to be made there must be some form of communication of a demand for compensation or other form of reparation by a third party upon the insured, or at least communication by the third party to the insured of a clear intention to hold the insured responsible for the damages in question.”5 Without citing this statement in Beaucours, the Court of Appeal has applied the underlying principle, finding that coverage under the Fund’s liability insurance policy was not triggered until the architects received the formal demand letter of the syndicate of co-owners notifying them of its intention of suing them on account of defects affecting the property.
It is worth noting that the findings of the Quebec Court of Appeal are based on its analysis of the specific terms and definitions contained in the policy issued by the Fund. Since claims made policies do not all have identical wording, in analysing such situations, it is important to start by reading the relevant clauses of the policy carefully.