On January 16, 2013, the Quebec Court of Appeal upheld an exclusion for criminal and intentional acts invoked by an insurer in relation to fire damage caused by its insured, who was 15 years old at the time the events took place. This decision1 of Quebec’s highest court provides a timely reminder of insurers’ rights in this regard.
On March 7, 1998, C.D., then 15 years old, started a fire in a shed next to Place Biermans, a shopping mall whose tenants included a restaurant, a bowling alley and a movie theatre. The fire spread to the shopping mall, destroying the entire building, with the exception of the restaurant, which suffered less severe damage. On August 19, 1998, C.D. pleaded guilty to an act of arson endangering human life under s. 433(a) of the Criminal Code.2
In 2001, two lawsuits were instituted as a result of the fire: (1) an action by the insurers of the restaurant against C.D., his mother and Gestion Claude Bellerive Inc. (Gestion), the owner of the shopping mall, seeking damages of $59,000; and (2) an action by Place Biermans and Gestion and its insurers in subrogation against C.D. et AXA Insurance Inc. (AXA), the insurer of the teen and his mother, seeking damages of $6,500,000. In its defence to the second action, AXA invoked an exclusion stipulated in the insurance policy concerning criminal or intentional acts. Meanwhile, C.D. admitted that he had started the fire in the shed, but denied that he had intended to set fire to Place Biermans. The crux of the debate was whether C.D. had malicious intent to cause the damage that ensued as a result of the initial fire. The lawsuits were joined and heard together before the Quebec Superior Court.
Decision in the Superior Court
In a judgment handed down by Justice Danielle Richer, the Superior Court confirmed that the exclusion clause invoked by AXA concerning [translation] “damage attributable to criminal acts or intentional acts of the Insured” applied to the damage resulting from C.D.’s actions. The Court found that the exclusion clause was valid, clear and did not require interpretation.
After admitting in evidence C.D.’s guilty plea to the criminal charges resulting from the fire at Place Biermans, the Court found that the guilty plea and C.D.’s admission in the civil proceedings that his actions had caused the fire were sufficient to trigger the exclusion stipulated in the insurance policy. The Court also dismissed the argument of C.D.’s counsel that his client’s culpable intent had not been proved and found that C.D. could not admit that he committed the indictable offence of arson without having intended to cause damage to the property of others [translation] “at least to the shed or with reckless disregard for the other consequences” (para. 71). The Court found that C.D.’s intention to cause damage removed the element of unforeseeability or risk on which an insurance policy is based. Hence, the contract was destroyed when the criminal act was committed.
Although the Superior Court did not have to rule on the application of the exclusion in the case of intentional acts because a criminal act was committed, it did consider C.D.’s arguments on that question and found, based on the evidence, that C.D. did realize or could not have been unaware that his conduct could cause a fire at Place Biermans. Therefore, the Court recognized that both the exclusion for intentional acts and the exclusion for criminal acts in the AXA insurance policy were triggered.
Quebec Court of Appeal
Place Biermans, Gestion and its insurers appealed the Superior Court’s decision dismissing their action against AXA. The Court of Appeal acknowledged the legality of the exclusion for criminal or intentional acts in the AXA insurance policy based on Articles 2402 and 2464 of the Civil Code of Québec, and reaffirmed the principle that the commission of a criminal act or an intentional act by an insured distorts the nature of the insurance policy. The Court of Appeal also confirmed the application in this case of both the exclusion for damage attributable to a criminal act and the exclusion for an intentional act, in the absence of evidence of a palpable and overriding error by the trial judge.