Last year we informed our readers of two judgments rendered by the Superior Court in the District of Chicoutimi in the matter of Lapierre and Axa v. Aménagements forestiers Ecoforêts (our bulletin 2007.08.0102E). A neighbour, operating a lumbering company had, through negligence, exceeded the limits of his land and cut over 3,000 trees on his neighbour’s property. The Court condemned the company to pay the value of the trees, namely approximately $30,000, but with an additional $60,000 in punitive damages in keeping with Section 1 of the Loi sur la protection des arbres (L.R.Q. chap. P-37). This Act, which is penal in nature, provides that any person who damages totally or partially any tree, bush, etc., could be held responsible for the payment to the owner, over and above actual damages, punitive damages not exceeding $200 per such tree, bush, etc... This Act is one of several which, together with the Charter of Rights, specifically provide the award of punitive damages.

The trial judge had to determine if Axa’s policy which covered the guilty neighbour, did cover this loss as Axa argued that its policy excluded “damages intentionally caused, provoked or foreseen by the Insured…” It is worth mentioning that Axa’s policy did not contain any exclusion relative to punitive damages. The judge concluded that Axa’s defence was ill-founded and that the damages were covered inasmuch as the damages were not intentionally caused with the wilful intention to damage the third party’s property. The cutting of all those trees resulted more of negligence, even if almost gross negligence.

This judgment was taken into appeal and in a very short four-liner judgment, the Quebec Court of Appeal reversed the decision of first instance and stated that Axa had no obligation to indemnify the third party as follows (free translation):

“We are of the opinion that the words “compensatory damages” are not ambiguous and do not include punitive damages. As a result, the policy did not cover punitive damages to which the debtor had been condemned.”

At first sight, it would appear that a debate between the Superior Court decision and that of the Appeal Court shifted somewhat inasmuch as in appeal, Axa appears to have limited its argument to the defence of compensatory damages excluding punitive damages even without the need of an exclusion to that effect. The debate regarding the intentional damages which formed the base of the first judgment does not appear to have been discussed or at least is not apparent from the appeal decision.

This would therefore mean that:

  1.  If a policy specifically covers compensatory damages, this would exclude the payment of punitive damages even if no specific exclusion to that effect is in the contract;
  1.  The wording of these contracts must be carefully reviewed inasmuch as several recent policies do not reproduce the word “compensatory” which would mean that such a case and without any exclusion to that effect, that policy could cover punitive damages;
  1. A damage caused intentionally by an insured but without wilful intention to cause the damages could possibly not be excluded inasmuch as the Superior Court had already ruled in the matter of Dorion c. Entreprises Télécapitale ltée that the intention referred to in old Section 2563 C.C.L.C. (2464 C.C.Q.) required a wilful intention, deliberate to cause damages while the intention to which refers Section 49 of the Charter was less strict and did not require proof of a wilful deliberate intention.
  1. As a result, if there is no exclusion on punitive damages and the word compensatory is not used in the wording, an insurer could very well be condemned to pay punitive damages according to the Charter.

Obviously, each case will have to be analyzed meticulously with the applicable contract and one will have to be careful to adapt those principles to specific cases.