On April 1, 2019, Justice Guylène Beaugé of the Superior Court of Québec dismissed a suit brought by two insureds (the Insureds) against their insurer, Promutuel Boréale (Promutuel) and allowed the latter’s counterclaim. The Superior Court of Québec’s decision in Miller v. Promutuel Boréale, société mutuelle d'assurances générales1 is relevant for several reasons, particularly because it underscores the significant and sometimes misunderstood consequences arising from a breach of warranty.
Context and nature of the warranty
In 2007, the Insureds acquired an inn located in Val-Morin in order to operate a bed and breakfast.2 In 2008, they took out a comprehensive home insurance policy with Promutuel, which was renewed annually.3 In 2010, after the inn was inspected, Promutuel required its Insureds to take certain corrective measures to secure a wood-burning stove.4 In the following days, one of the Insureds confirmed her undertaking by completing the form provided by Promutuel for this purpose.5
In 2014, the inn was destroyed by a fire that broke out when one of the Insureds was testing a camp stove in the inn basement6. After the fire, Promutuel refused to compensate its Insureds, considering that they had breached the warranty to secure the wood-burning stove and that the fire was a result of their intentional negligence.7 The Insureds instituted proceedings against Promutuel. Promutuel filed a counterclaim suing its Insureds for, among other things, amounts it paid to their mortgage creditor after the fire.8
Breach of warranty and suspension of fire insurance
The Court defined the warranty as (art. 2412 C.C.Q) "[translation] consisting of a promise by the insured to take well-defined actions to reduce the risk."9 The Court then addressed the Insureds’ arguments that they could not be in breach of this warranty because they had not signed Promutuel’s form and the corrective measures had not been set out in a rider.10
The Court dismissed these arguments. In the Court’s opinion, "[translation] the warranty does not require any formality" and "[translation] does not need to be added in a rider in order to be valid."11 In fact, according to the Court, it is only when the warranty is stipulated in a rider that its signature becomes necessary.12 Discussing the consequence of a breach of warranty (i.e. the suspension of coverage as per art. 2412 C.C.Q), the Court emphasized that this consequence works against the co-insureds, "[translation] even if they are unaware of the existence of a warranty or of a failure to comply therewith."13
Believing the Insureds had falsely represented to Promutuel that the wood-burning stove had been sealed and that they had failed to comply with the warranty, the Court ordered that the fire insurance coverage be suspended, even if the wood-burning stove was not the source of the fire.14
The Insureds’ intentional negligence
Although the Court’s conclusion on the issue of the breach of warranty was enough to seal the fate of the Insureds’ recourse, the Court nevertheless addressed the issue of the Insureds’ intentional negligence.
On the basis of a preponderance of evidence and serious, precise and concordant presumptions, the Court concluded that the preposterous and unlikely explanations of the Insureds, struggling with financial problems and unable to sell the inn, could lead to only one conclusion; that the fire was a result of their intentional actions.15 This entails the loss of their right to indemnity (art. 2464 and 2472 C.C.Q).16
This decision emphasizes the serious sanction resulting from breach of warranty, namely suspension of the coverage at issue, in this case, fire insurance coverage. There does not need to be a link between the occurrence of the damage and the breach of warranty. In fact, in terms of warranty, the insurer does not have to demonstrate that the damage would not have occurred if the warranty had been complied with.17 However, the warranty must remain relevant to the risk considered.18