General Security Insurance Co. of Canada v. Bélanger et al., [1977] 1 SCR 802

Supreme Court of Canada

General Security Insurance Co. of Canada v. Bélanger et al., [1977] 1 S.C.R. 802

Date: 1975-12-19

General Security Insurance Company of Canada (Defendant) Appellant;

and

Israël Bélanger, Mathilda Gagné, Laurette Bélanger and Lucien Ouellet (Plaintiffs);

and

Highway Victims Indemnity Fund (Defendant) Respondents.

1975: June 5 and 6; 1975: December 19.

Present: Judson, Ritchie, Pigeon, Dickson and Beetz JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR QUEBEC

Motor vehicles—Remedy of highway victims against insurer and Indemnity Fund—Prescription—Failure of insured to notify insurer of change of car—Cause of lapse that cannot be set up against victims—Highway Victims Indemnity Act, R.S.Q. 1964, c. 232—Civil Code, arts. 1056, 2262(2), 2264 and 2265.

By reason of an accident which occurred on July 24, 1964 and in which one Antoine Tremblay was killed, plaintiffs-respondents obtained judgments against his estate on May 10, 1968. On February 23, 1970 they brought an action against Tremblay’s insurer (“General Security”) and the Indemnity Fund to obtain payment of the amount of the judgments.

The first ground of appeal raised by General Security was prescription by one year. Its second ground of appeal was that there was no insurance contract covering Tremblay’s liability. According to appellant the insurance policy in force at the time of the accident described the insured vehicle as a 1957 Chevrolet, whereas the car involved in the accident was a 1963 Chevrolet. When a new car was acquired, this policy stated that the insured had to notify the insurer within fourteen days of taking delivery of the new car, and this had not been done in the case at bar. The Superior Court ordered appellant to pay to the respondents the amount of the judgments and dismissed the action brought against the Fund. A majority decision of the

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Court of Appeal affirmed this decision. Hence the appeals to this Court against plaintiffs and the Fund.

Held: The appeals should be dismissed.

The prescription by one year of art. 1056 C.C. and also of para. 2 of art. 2262 C.C. applies only in cases of offence or quasi-offence. Section 6 of the Highway Victims Indemnity Act obligates third parties to obtain a final judgment executory against the insured before suing the insurer. It is therefore the judgments obtained against the estate of the insured which form the basis of respondents’ claim, and these judgments constitute titles to which the prescription by thirty years provided in art. 2265 C.C. applies. In the case of the clause in the policy which stipulates that every action against the insurer under the policy must be brought within one year next after the issue of the insured’s liability is decided by a final judgment, this is a condition which constitutes a lapse which may be set up against the insured, but not against the victims or their legal representatives.

It is in this light that we should also see General Security’s second ground of appeal, namely, that there was no insurance contract covering the liability of the owner of the automobile in which the victims were passengers at the time of the accident. The insurance policy in force contained a provision under which, in case of replacement of the car designated in the policy by another car, the insurance continued for a period of fourteen days, that is, the period granted to the insured to give notice of the change of his car. In liability insurance the insured car is not the principal factor and in the case at bar failure to give notice caused no prejudice to the insurer, since there was no increase in risk nor extra premium due. Although the insured violated a condition of the policy, this is still a case of lapse which cannot be set up against victims under s. 6 of the Act.

As for the Fund, there is no reason for obliging it rather than General Security to indemnify the victims or their legal representatives.

Fonds d’indemnisation v. Federation Insurance Company of Canada, [1972] C.A. 783, not followed; Northern Assurance Co. Ltd. v. Brown, [1956] S.C.R. 658; Cauchon v. Fidelity Phenix Insurance Company, [1967] C.S. 185, referred to; Terrasse c. Cie la Zurich (1971), Revue générale des assurances terrestres, vol. 42, p. 515; Pascoe v. Treasurer of the Province of Manitoba (1958), 16 D.L.R. (2d) 300, distinguished.

APPEALS from a decision of the Court of Appeal of Quebec affirming the judgment of the

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Superior Court allowing respondents’ action against appellant and dismissing the action against the Indemnity Fund. Appeals dismissed.

Pierre Michaud, for the appellant.

André Casgrain, Q.C., for the respondents Bélanger et al.

Pierre Cantin, for the respondent the Indemnity Fund.

The judgment of the Court was delivered by

PIGEON J.—These appeals are from a decision of the Court of Appeal for Quebec affirming the judgment of the Superior Court ordering appellant (“General Security”) to pay to the respondents the amount of the judgments that they have respectively obtained against the estate of one Antoine Tremblay, by reason of an accident which occurred on July 24, 1964 and in which the latter was killed. Leave to appeal was granted towards the respondents whose claim computed in accordance with the Supreme Court Act did not exceed $10,000.

As to the Highway Victims Indemnity Fund (“the Fund”), the action brought against it at the same time as against General Security was dismissed by the Superior Court and the Court of Appeal. At the hearing, leave to appeal against it was also granted to all the respondents. It should be added that the judgments against the estate of the driver of the automobile were delivered on May 10, 1968. In a letter dated August 23, 1968 attorneys for the Fund, in answer to applications made under ss. 36 and 37 of the Highway Victims Indemnity Act (“the Act”, R.S.Q. c. 232), told respondents’ solicitors:

[TRANSLATION] In these circumstances, we can only refer you to General Security.

The latter’s attorneys, for their part, said in a letter dated September 26, 1968:

[TRANSLATION] The automobile that caused the accident was not insured on May 24, 1964. We would accordingly suggest that you apply to the Fund. If the Fund is of the opinion that a remedy exists, it can exercise this itself.

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The action against General Security and the Fund was dated February 23, 1970.

The first ground of appeal raised by General Security is prescription by one year provided in art. 2262, para. 2 of the Civil Code. As the trial judge pointed out, only the judgment in favour of respondent Laurette Bélanger was rendered on an action for bodily injuries as contemplated by this article. The other judgments were rendered on actions instituted pursuant to art. 1056 C.C., which is specifically excluded in para. 2 of art. 2262. In my opinion, neither prescription under that provision nor the one year time limit provided for in art. 1056 can apply to the remedy against an insurer created by s. 6 of the Act, which reads as follows:

6. Subject to the conditions of his contract and up to the amount stipulated, an insurer is directly responsible towards third parties for any damage covered by liability insurance.

Furthermore, up to the amount, for each automobile, prescribed in section 14, he cannot set up against them the causes of nullity or of lapse that might be set up against the insured.

He cannot be sued by the third parties before final judgment executory against the insured.

He may if necessary intervene in the action taken against the insured.

Just as art. 1056 concerns the right of the consort, ascendants and descendants to recover from the person who committed the offence or quasi-offence all damages occasioned by the death of the victim, art. 2262, para. 2 deals with the victim’s right to bring an action for bodily injuries. In both cases, after judgment prescription does not begin to run again for the same period as before, but the judgment constitutes a title which is only prescribed by thirty years.

Art. 2264. After renunciation or interruption, except as to prescription by ten years in favor of subsequent purchasers, prescription recommences to run for the same time as before, if there be no novation, saving the provisions of the following article.

Art. 2265. Any action which is not declared to be perempted, and any judicial condemnation, constitutes a title which is only prescribed by thirty years, although the subject matter thereof be sooner prescriptible.

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Thus, on the question of prescription in the case at bar, the Superior Court and the Court of Appeal correctly refused to follow the decision of Mayrand J. In Fonds d’indemnisation v. Federation Insurance Company of Canada, although affirmed by the Court of Appeal[1]. As Montgomery J.A. noted in that case, the decision was based on French and Belgian case law and legal theory. In this area, French law is quite different from that of Quebec. There are no provinsions in the Code Napoléon corresponding with the first paragraph of art. 2263 C.C. Also in France the anactment on which a victim’s right to a direct action against an insurer is based is by no means identical with s. 6 of the Act. It is s. 53 of the law of July 13, 1930 on insurance, under the heading “Liability Insurance”, reading as follows:

[TRANSLATION] 53. The insurer may not pay to a person other than the injured third party all or part of the amount due by him, until such third party is not indemnified, up to the said amount, for the financial consequences of the wrongful act for which the insured was liable.

As regards automobile insurance, under s. 13 of the Decree of January 7, 1959, the following cannot be set up against the victims or their beneficiaries:

[TRANSLATION] 2. Forfeitures, except suspension in due course for non-payment of the premium;

As may be seen, this legislation is quite different from s. 6 of the Act of Quebec. There is no provision prohibiting action against the insurer before final executory judgment against the insured. In that respect it differs greatly from the law of Quebec whereby a judgment is an executory title which is only prescribed by thirty years, even though the cause of action be subject to a shorter prescription time. Then, it must be considered that the decision of the Cour de Cassation, cited by Mayrand J. (June 25, 1945, D. 1946.1.51), dealt only with the question whether the two-year prescriptin period in s. 25 of the Act of July 13, 1930 on insurance can apply to a direct action by a

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victim against an insurer. Section 25 reads as follows:

[TRANSLATION] 25. Any action arising from an insurance contract is prescribed by two years from the event giving rise to it.

Repeating the opening words of an earlier decision of 1939 (Dalloz J.G. 1939.1.68) the Cour de Cassation said:

[TRANSLATION] Whereas although the action of the victim of an accident against the insurer depends upon the existence of an agreement between the latter and the party at fault in the accident and can only avail within its limits, the basis for this action is, under the law, the right to compensation for the damage caused by the accident for which the insured is found responsible;…

If this reasoning is applied to the law of Quebec, bearing in mind the differences mentioned earlier, the thirty-year prescription only may be applied. At the time when the remedy may be exercised against the insurer, the victim’s right against the insured party has become subject to this thirty-year prescription period.

In the Court of Appeal Rivard J.A., dissenting, would have allowed the appeal of General Security, relying upon para. 3 of condition No. 12 of the policy, which reads as follows:

[TRANSLATION] (3) Every action or proceeding against the Insurer under the policy in respect of loss of or damage to the automobile shall be commenced within one year next after the happening of the loss and not afterwards, and in respect of loss or damage to persons or property shall be commenced within one year next after the issue of the Insured’s liability is decided by judgment, agreement, or law as to limitation of action, and not afterwards.

Mayrand J.’s conclusion in La Fédération, that this is not applicable to the remedy of a victim against the insurer should, I think, be adopted for several reasons. First, such action is not based on the contract but on the law. If in France the provision concerning the prescription of [TRANSLATION] “any action arising from an insurance contract” is considered inapplicable to a direct action by the victim, a fortiori should it be so under the Quebec law where this is not a prescription established by law but merely as a

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condition of the contract. Furthermore, this condition only relates to “every action …under the policy”.

It should be noted that, under the Ontario Act giving victims of automobile accidents a direct remedy against the insurer of any motorist’s liability, it has been held that the statutory condition of motor vehicle liability policies similar to para. 3 above quoted does not apply to the remedy of a victim. In Northern Assurance Co. Ltd. v. Brown[2], Kerwin C.J.C. said (at p. 660):

That claim is a substantive right given by statute and does not arise under the contract.

Also, I can see no reason why this condition should not be considered as a “lapse” which cannot be set up against the claimants since the total amount claimed from General Security is less than the amount prescribed in s. 14 of the Act. With respect, I must say in this regard that Mayrand J. is wrong in finding an ambiguity in s. 6 of the Act because [TRANSLATION] “on the one hand, the responsibility of the insurer towards the victim is subject to the conditions of the contract (para. 1), and on the other, the causes of nullity or of lapse that can be set up against the insured cannot be set up against the victim” (para. 2). It should be borne in mind that the second paragraph only applies up to the amount prescribed in s. 14. There is thus no ambiguity or contradiction. The first paragraph sets forth the general rule, and the second states an exception to this rule. The scope of the exception is limited in two ways: first, as to the amount, and second, in that it covers causes of nullity or of “lapse” only, not every condition. As examples of conditions contemplated in the first paragraph not excluded by the second, one would clearly have to include the definition of the extent of the coverage afforded to the insured. It is clear that while causes of nullity or of “lapse” cannot be set up against the victims within the prescribed limits, the Act does not extend the insurance contract to what it does not cover.

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These observations should be kept in mind when considering General Security’s last ground of appeal, namely, that there was no insurance contract covering the liability of the owner and driver of the automobile in which the victims were passengers at the time of the accident. The car was a 1963 Chevrolet that the insured had purchased on February 28, 1964. The bill of sale entered in the record shows that he had traded in a 1960 Ford automobile. The insurance policy in force at the time of the accident had been issued for one year from September 6, 1963. The insured vehicle described therein is a 1957 Chevrolet. This is the vehicle that was described in the first policy issued by General Security to the insured in March 1957, when he purchased it. The credit report obtained at the time shows that the insured previously owned a 1954 Oldsmobile. In every renewal certificate and policy subsequently issued, the car mentioned was always the same 1957 Chevrolet. General Security argues that there is nothing to show that the insured ever disposed of the 1957 Chevrolet, and that consequently there is no insurance for liability arising out of the use of the 1963 Chevrolet.

Although this was never expressly stated in the judgments, either in the Superior Court or on appeal, it was clearly assumed in view of the proven facts and circumstances, that the insured Antoine Tremblay never owned more than one automobile at a time. The 1957 Chevrolet had obviously replaced the 1954 Oldsmobile just as the 1960 Ford replaced the 1957 Chevrolet and was in turn replaced by the 1963 Chevrolet. To disprove this, General Security alleged in its defence that the 1960 Ford was covered by a policy issued by another insurer. No evidence whatsoever was adduced to prove this allegation which, if established, would have been conclusive against the claims advanced. The trial judge and the Court of Appeal having decided the case on the assumption that the insured never had more than one car at a time, but simply neglected to inform his insurer of the change, it would not be fair now, in my view, to reopen this aspect of the case. While it is true that there is no direct proof, it has to be borne in mind that the claimants are the victims or the legal representatives of the victims of an automo-

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bile accident in which the insured died. The latter was a retired priest, and the record shows that when General Security tried to contact his heirs, the letter was delivered to the mother superior of a convent. He was certainly not wealthy, since the claimants were unable to collect a cent. That he kept two cars is in the highest degree unlikely.

If, for those reasons, it is taken as established that the policyholder of General Security never had more than one car, it necessarily follows that although the insurance policy issued for one year from September 6, 1963 mentioned a 1957 Chevrolet, it was actually covering the car that the insured owned at that time, namely the 1960 Ford. The issue in this case concerns not vehicle insurance, but liability insurance only, and the evidence of General Security’s underwriter is as follows:

[TRANSLATION] Usually the car is not considered, it is mostly the driver.

When the insured exchanged his 1960 Ford for the 1963 Chevrolet, the insurance became ipso facto applicable to the new car, by virtue of the following stipulation in the policy under the heading: [TRANSLATION] “Automobile Defined”.

[TRANSLATION] In this policy except where stated to the contrary the words “the automobile” mean:

Under sections A (Third Party Liability), B (Accident Benefits), C (Loss of or Damage to Insured Automobile)

(1) The Described Automobile—an automobile or trailer specifically described in the policy: the word “trailer” includes a semi-trailer;

(2) A Newly Acquired Automobile—an automobile, ownership of which is acquired by the Insured and, within fourteen days following the date of its delivery to him, notified to the Insurer in respect of which the Insured has no other valid insurance, if either it replaces an automobile described in the application or the Insurer insures (in respect of sections A, B or subsections 1, 2, 3 or 4 of section C of the Insuring Agreements under which claim is made) all automobiles owned by the Insured at such delivery date and in respect of which the

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Insured pays any additional premium required; provided however, that insurance hereunder shall not apply if the Insured is engaged in the business of selling automobiles;

It must obviously be conceded that the insured violated the condition in failing to notify the insurer within fourteen days of taking delivery of the new car. Although this violation caused no prejudice to the insurer, since there was no increase in risk nor extra premium due, the insurance necessarily ceased to protect the insured, by virtue of the above quoted condition (Cauchon v. Fidelity Phenix Insurance Company[3]). May the same be said towards respondents? I do not think so. In my opinion, General Security was wrong in its contention that there was no insurance. Since fourteen days are allowed for notification of a change of car, this implies that the insurance continues during those fourteen days. Thus it is a “lapse” that occurs at the end of this time, by virtue of the condition.

Counsel for General Security relied on a decision of the Cour de Cassation dated March 9, 1971, Terrasse c. Cie La Zurich[4], in which it was held that the suspension of the insurance contract, which under French law occurs de jure starting from the day following a transfer of the vehicle, [TRANSLATION] “cannot be assimilated to a forfeiture for a failure on the part of the insured to perform his obligations toward the insurer, and does not therefore come within the provisions of s. 13 cited above.”

This solution is not applicable in Quebec law because of major differences. The policy is not suspended immediately by the transfer of the vehicle but covers the new car for fourteen days. Furthermore, in the decree of January 7, 1959, the following provision is found after s. 13:

[TRANSLATION] 14. In all cases where a contract was underwritten for compulsory insurance, the insurer who, in the case of an accident involving bodily injury, wishes to argue the nullity of such contract, its suspension or suspension of the coverage, the absence of insu-

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rance or partial insurance, against the victim or his legal representatives, must, by registered mail with notification of receipt, give notice of this to the automobile warranty fund, as provided in the first paragraph of s. 5 of Decree No. 52-763 of June 30, 1952.

This provision in which the suspension of the contract and the suspension of the coverage are mentioned in turn, appears to imply that the suspension of the contract is not a forfeiture that cannot be set up against the victims. It is a suspension of the contract that results from a transfer of the insured automobile; s. 19(a) of the Act of July 13, 1930, added by an order of July 7, 1959, contains the following:

[TRANSLATION] 19(a) (Added, Ord. No. 59-113, Jan. 7, 1959).—In case of the transfer of a land motor vehicle or any trailer or semitrailer, and only in respect of the transferred vehicle, the insurance contract is suspended de jure commencing at midnight on the day following the transfer; it may be rescinded on ten days’ notice by either party.

Failing reinstatement of the contract by agreement of the parties or rescission by one of them, rescission shall occur de jure when six months from the transfer have elapsed.

I did not fail to consider the judgment of Monnin J. sitting as a trial judge in Manitoba, in Pascoe v. Treasurer of the Province of Manitoba[5]. He held that the failure to notify the insurer within fourteen days of a change of car could be set up against victims of automobile accidents. The enactment on which this judgment was founded is quite different from that of s.6 of the Act of Quebec where the words which are the basis of the Manitoba judgment are not to be found. In my view, the more concise Act of Quebec is also broader in scope. I see no reason for limiting its effect. Why should the insurer be entitled to set up against the victims the failure to notify him of a change of car, which causes him no prejudice, when he certainly cannot set up the failure to give notification of an accident, which could be extremely prejudicial to him. To differentiate between what occurs previous to an accident and what occurs subsequently is to add to the Act a distinction that it does not make or in any way

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justify.

It should be borne in mind that, under the Act of Quebec, the insurers, as a group, maintain the Fund by assessments on premiums. The purpose of s. 6 is clearly to prevent an insurer from passing on to the group a risk for which he has collected a premium. Having to bear the consequences when a false statement by an insured results in his taking a lower premium that he would otherwise charge, a fortiori he should not be allowed to pass the liability on to the Fund because of an omission that caused him no prejudice. In the case at bar, the real dispute is between the insurer and the Fund. I see no reason for obliging the latter rather than General Security to indemnify the victims or their legal representatives.

For the above reasons, I am of the opinion that the appeal of General Security should be dismissed with costs; but I would dismiss the appeal against the Fund without costs.

Judgment accordingly.

Solicitors for the appellant: Desjardins, Ducharme, Desjardins, Tellier, Zigby & Michaud, Montreal.

Solicitors for the respondents: Casgrain, Casgrain & Crevier, Rimouski.

Solicitors for the respondent, the Fund: Gagnon, de Billy, Cantin, Dionne & Martin, Quebec.