The Court of appeal removes legal persons from an insured’s household

October 26, 2003 – In a significant decision recently rendered by the Court of Appeal, the Court ruled that legal persons are not members of an insured’s household. The Court, presided over by the Honourable Judge Louise Mailhot, J.C.A., unanimously rejected the ruling rendered by the Superior Court in 1997 in Simcoe Érié, Compagnie d’Assurances Générales v. Garage J. Aimé Tremblay inc. where it was decided that a legal person could be a person who is a member of the household of an insured. In Tremblay, the Court had concluded that a legal person whose sole shareholder and director was the same person as the insured natural person had to be considered a member of the household within the meaning of article 2474 C.C.Q.

The decision recently rendered in Québec City on September 25, 2003 by the Honourable Judge Mailhot in the matter of La Capitale, Compagnie d’Assurance v. Le Groupe Commerce et al. squarely sets aside this caselaw which had been pleaded before the courts on many occasions since 1997.

In La Capitale v. Groupe Commerce, La Capitale had insured a building owned by its insureds, Hélène Jacques and Benoît Roy, the basement of which was also occupied by the firm B. Roy Vêtements Sports inc. of which Benoît Roy was the majority shareholder and sole director. The fire that destroyed the building insured by La Capitale was caused by the vehicle owned by B. Roy Vêtements Sports inc. which was insured by Le Groupe Commerce.

The judge who heard the motion to dismiss followed the caselaw established by the decision in Garage J. Aimé Tremblay and concluded that since the insured could be called to testify for the plaintiff as well as for the defendant, this meant that the company should be considered to be a member of the household and La Capitale’s action against Le Groupe Commerce, the vehicle’s insurer, should be dismissed.

The Court of Appeal has unequivocally overturned this reasoning by reiterating the principles proposed by the Supreme Court of Canada in the 1987 decision in Kosmopoulos v. Constitution Insurance in which the highest court in the land ruled that, in general, a corporation is a separate legal entity from its shareholders and that a court may depart from this principle only in specific circumstances. The Court of Appeal had already favourably cited a decision rendered by the Honourable Judge Pierre Verdy in the 1990 judgment in La Laurentienne Générale Compagnie d’Assurance v. Wolfe which had followed the reasoning in Kosmopoulos.

The recent decision of the Court of Appeal in La Capitale v. Groupe Commerce brings us back to the very essence of the exception set out in article 2474, which exception provides that an insurer cannot take action against a member of the household or that member’s insurer, by ruling that the legislature’s purpose and principal objective in introducing this exception to the right of subrogation in Québec law was to prevent the insurer from instituting proceedings against persons whom the insured would never have sued by reason of family or other ties or an intimate or close relationship with that person or because the insured had control over that person. In so ruling, the Court of Appeal has just decided that these notions of intimacy and closeness are incompatible with the concept of legal personality.

In addition to excluding legal persons from an insured’s household, the Court of Appeal in La Capitale v. Commerce has also introduced a new detail regarding the test to be applied when determining whether or not a person can be considered a member of an insured’s household. The Court of Appeal specified that the issue is not one of determining whether or not, in the circumstances, the insured would have instituted proceedings against the liable third party if there were no insurance, but rather one of determining the legislature’s true intent as to the scope it wished to give to the exception set forth in article 2474 C.C.Q. when it excluded any possibility of a recourse in situations involving a family relationship between individuals in the broadest sense of that concept. It would appear that this decision does not set aside a case by case determination by the courts, but it does introduce the notion that a court must seek out the legislature’s intention rather than that of the insured.

In our opinion, this decision is a significant milestone in the jurisprudential development of the notion of “member of the household”. However, it is not the last word on this “rule of convenience” which has been elevated to the rank of principle of law, as stated by the former Chief Justice of Québec, the Honourable Claude Bisson.