In theory, section 2160 of the Civil Code of Quebec is clear. In fact, the mandator is liable to third persons for the acts performed by the mandatary in the performance and within the limits of his mandate and even if the acts exceed the limits, unless the mandator has not ratified such acts.

In the field of insurance, where every company does business with numerous adjustors, a simple mistake on coverage could benefit insureds who could eventually receive an insurance indemnity not otherwise owed.

In the judgment De Melo vs. Promutuel L’Outaouais, the Court of Quebec rendered an interesting decision regarding whether acts and words of an adjustor were binding upon the insurance company which had given him a mandate.  

In October 2007, a fire erupted and caused the total loss of the insureds’ garage as well as some minor damages to the residence.

Based on the investigation, the fire was caused by an artisanal smokehouse located next to the garage. Following this, the adjustor mandated by the insurer, considering that the damages were covered under the insurance policy, immediately recommended an advance indemnity of $13,000.00 to allow the insureds to do urgent repairs to the garage.

However, in December 2007, the insurer terminated the home insurance contract retroactively because the insureds had omitted to declare the presence of the smokehouse. In fact, the insurer’s employees had never noted the presence of the smokehouse even though they had inspected the garage prior to underwriting the risk.

In light of this denial of coverage, the insureds filed proceedings against the insurer claiming the damages to their household. In response, the insurer filed a cross claim for the reimbursement of the advance of $13,000.00 that had already been paid out to the insureds following the adjustor’s recommendation.

In order to resolve the coverage dispute, the Court had to analyse three questions: Did the insurer know of the existence and use of the smokehouse? If not, was this an aggravation of the risk? And finally, were the acts and words of the adjustor binding upon the insurer?

As to the first question, the Court concluded that the insurer did not know of the existence of the smokehouse, therefore the insurance policy did not cover the risks associated with this apparatus. Moreover, the Court concluded that the presence of the smokehouse was an aggravation of the risk because: “it was an artisanal heating system the installation and usage of which did not conform to the applicable norms and regulations” (our translation).

Consequently, the Court concluded that the insurance policy had to be cancelled. However, the Court still had to analyse the question concerning the acts and words of the adjustor in relation to the insurer.

The adjustor had declared to the insureds that the claim was covered and he had recommended an indemnity advance of $13 000 that was immediately sent to them. Some months later, the insurer, once informed of the presence of the smokehouse, advised the insureds of its intention to request the reimbursement of said indemnity.

On this specific question, the Court examined if the insurer, as a mandator, had ratified the acts and words of the adjustor, its mandatary. To do so, the Court applied the three prong test provided by the Court of Appeal of Quebec in MFQ Corporation d’assurance vs. Assurance-vie Desjardins: (1) the presence of acts or words that can only be explained by an intent to ratify, (2) knowledge of the ratified contract and (3) the intent to ratify the agreement.

After having analysed these factors, Honorable Judge Fournier, of the Court of Quebec, came to the conclusion that the insurer had not ratified the acts of its mandatary even though the latter had more than 30 years of experience in the field. In fact, the adjustor had exceeded the limits of his mandate by declaring to the insureds that their loss was covered. This finding was true because the adjustor had only been hired to investigate, and therefore, solely had the power of recommendation. In fact, the advance indemnity was paid out by the insurer without having received a complete investigation file from the adjustor, which the latter acknowledged.

In light of the foregoing, the Court granted the insurer’s cross claim and condemned the insureds to reimburse the advance indemnity paid out, which, in the end, permitted the insurer to deny the claim albeit the adjustor’s mistake.