Lejeune v. Cumis Insurance Society Inc., [1989] 2 S.C.R. 1048
Cumis Insurance Society Inc. Appellant
v.
Jean Lejeune Respondent
indexed as: lejeune v. cumis insurance society inc.
File No.: 20743.
1989: June 15; 1989: October 26.
Present: Lamer, L'Heureux‑Dubé, Sopinka, Gonthier and Cory JJ.
on appeal from the court of appeal for quebec
Insurance -- Fire insurance -- Subject-matter of insurance changed ‑‑ Building destroyed by fire which started in apartment leased and used as meeting‑place -- Insured property described in policy as premises "occupied solely as private dwelling" -- Use of insured premises changed without knowledge of insurer -- Whether insurer justified in refusing to compensate insured -- Distinction between aggravation and exclusion of risk -- Civil Code of Lower Canada, arts. 2488, 2500, 2566.
Respondent, the owner of a four‑apartment building, leased premises to the Maison des jeunes Inc., which used them for a few hours a day to hold social gatherings. A few months later, the building was destroyed by a fire which started in the hallway of these premises. Appellant refused to compensate respondent because the use of the insured premises was changed without its knowledge. Under the terms of the insurance policy, only buildings described in the policy and occupied as a private dwelling were covered. The Superior Court dismissed respondent's action against appellant, but a majority of the Court of Appeal reversed this judgment. The appeal is to determine whether appellant's refusal to compensate respondent is justified.
Held: The appeal should be allowed.
The leasing of the apartment for social gatherings transformed the subject‑matter of the insurance and the insurer was therefore justified in refusing to compensate the respondent. The risk which occurred was not that covered by the policy. In view of the finding that the insurance did not cover the loss suffered by respondent, it is not necessary to determine whether the leasing of the apartment for social gatherings aggravated the risk within the meaning of art. 2566 C.C.L.C.
To determine whether the case is one of exclusion or aggravation of risk, it is necessary to identify what the insurer intended to insure. Once the subject‑matter of the insurance has been identified, it must be determined whether the insurer has indicated his intent to insure the risk which has occurred. In the case of exclusion as in the case of aggravation of risk, we are concerned with a risk which was not assumed by the insurer under the insurance contract. When there is an exclusion of risk, the insurer expressly indicates his intent never to cover the risk excluded. If the excluded risk occurs or if a loss occurs outside the specific conditions stated by the policy, the insured will not be entitled to any coverage. When there is an aggravation of risk, the insurer has not specifically undertaken to guarantee the increased risks; but he does not categorically refuse to cover them, reserving the right to assess the situation subsequently and, depending on the circumstances, to require a higher premium or to rescind the contract.
In the case at bar, the facts disclose an "exclusion" rather than an "aggravation" of risk. It is clear from the insurance policy that the insurer intended to insure against fire a building occupied solely for residential purposes. The Maison des jeunes Inc. was using the leased premises for other than residential purposes. The apartment was only occupied for a few hours a day, no meals were prepared or eaten on the premises and no one spent the night in the apartment. Respondent himself admitted the non‑residential nature of the use of the leased premises, since he amended the standard lease to indicate that the apartment would be occupied as a meeting‑place and not as a dwelling‑place. It therefore cannot be said that the building was "occupied solely as a private dwelling" as stipulated in the insurance policy. Respondent insured his building against fire while it was used exclusively for residential purposes, but the loss occurred while the building was used for mixed purposes.
Cases Cited
Referred to: Alliance Insurance Co. of Philadelphia v. Laurentian Colonies and Hotels Ltd., [1953] Q.B. 241; Madill v. Lirette, [1987] R.J.Q. 993; Car & General Insurance Corp. v. Therrien, [1969] Q.B. 144; Pincourt Restaurant Inc. v. United States Fire Insurance Co., [1987] R.R.A. 444.
Statutes and Regulations Cited
Civil Code of Lower Canada, arts. 2488 [ad. 1974, c. 70, s. 2], 2500 [ad. idem; am. 1979, c. 33, s. 47], 2566 [ad. 1974, c. 70, s. 2; am. 1979, c. 33, s. 48].
Code des assurances (France), ss. L. 113‑2, L. 113‑4, L. 113‑9.
Loi du 13 juillet 1930 relative au contrat d'assurance (France), ss. 15, 17, 22.
Authors Cited
Belleau, Claude. "Réflexions sur les origines et l'interprétation de certains articles du Code civil en matière d'assurance" (1987), 21 R.J.T. 223.
Brown, Craig and Julio Menezes. Insurance Law in Canada. Toronto: Carswells, 1982.
Jacob, Nicolas. Les assurances, 2e éd. Paris: Dalloz, 1979.
Lambert‑Faivre, Yvonne. Droit des assurances, 5e éd. Paris: Dalloz, 1985.
Picard, Maurice et André Besson. Les assurances terrestres, t. 1, 5e éd. Par André Besson. Paris: L.G.D.J., 1982.
APPEAL from a judgment of the Quebec Court of Appeal, [1988] R.J.Q. 1, 21 Q.A.C. 90, which reversed a judgment of the Superior Court, [1985] C.S. 608. Appeal allowed.
Nicole Laflamme and Martin Gelfland, for the appellant.
Jacques Flynn, Q.C., for the respondent.
//Gonthier J.//
English version of the judgment of the Court delivered by
GONTHIER J. --
Introduction
A fire destroyed respondent's apartment blocks; appellant refused to compensate him on the ground that the insured premises were not used in accordance with their description in the policy. Is this argument valid regardless of aggravation of risk? If it is, the case raises questions of the interpretation and implementation of arts. 2488, 2500 and 2566, introduced into the Civil Code of Lower Canada at the time of the insurance law reform in 1976.
Facts and Proceedings
The facts are not in dispute; respondent accepted appellant's statement of the facts, which follows:
[TRANSLATION] Respondent was the owner of a building at Charny, Quebec, containing four family‑type dwellings, two on the ground floor and the other two on the first and second floors.
In July 1980 a lease was concluded between respondent and an organization known as the Maison des jeunes Inc. to lease the large premises on the ground floor to the latter. These premises had previously been occupied by a family, but the Maison des jeunes Inc. intended to use them for only a few hours a day to hold meetings for young people between fourteen and eighteen years old.
On January 11, 1981 a fire which started in the ground floor hallway destroyed the building.
Appellant was an insurance company which insured respondent's property. However, it refused to compensate the latter after the fire as the use of the premises had been changed without [appellant's] knowledge, and under the terms of the policy only buildings described in the policy and occupied as a private dwelling were covered.
Respondent accordingly sued appellant in the Superior Court, district of Québec . . .
. . . Pierre Côté J. handed down his judgment on February 13, 1985, in which he dismissed the action with costs. The plaintiff accordingly appealed from this judgment. The Quebec Court of Appeal reversed the trial judgment . . .
As a consequence of this judgment, appellant asked this Court for leave to appeal.
Leave was granted by this honourable Court on June 2, 1988.
Relevant Legislation
The case concerns three articles of the Civil Code of Lower Canada, arts. 2566, 2488 and 2500:
2566. The insured must promptly advise the insurer of any increase in the risk specified in the contract or that resulting from events within his control and which is likely to materially influence a reasonable insurer in the setting of the rate of the premium, the appraisal of the risk or the decision to continue to insure it.
The insurer may then cancel the contract in accordance with article 2567 or propose in writing a new rate of premium which the insured must accept and pay within thirty days of its receipt, failing which the policy ceases to be in force.
The insurer is deemed to have acquiesced in the change communicated to him if he continues to accept the premiums or pays an indemnity after a loss.
If the insured fails to discharge his obligation under the first paragraph, article 2488 applies mutatis mutandis.
2488. In damage insurance, unless the bad faith of the proposer is established, the insurer is liable for the risk in the proportion that the premium collected bears to that which it should have collected, except where it is established that it would not have covered the risk if it had known the true facts.
2500. Any stipulation which derogates from the prescriptions of . . . the third paragraph of article 2566 . . . is without effect.
Except to the extent that it is more favourable to the policyholder or to the beneficiary, any stipulation which derogates from the prescriptions of . . . the first, second and fourth paragraphs of article 2566 . . . is without effect.
Lower Court Judgments
Superior Court
Pierre Côté A.C.J. of the Superior Court found the testimony of the expert witnesses contradictory as to the aggravation of risk resulting from use of the premises leased to the Maison des jeunes Inc. However, in his opinion the use of these premises altered the subject‑matter of the insurance. The property insured was described in the insurance policy as a dwelling‑place [TRANSLATION] "occupied solely as a private dwelling or . . . [used as] private summer or seasonal residences". Based on the meaning of the terms "dwelling", "residence" and "private", and on certain judgments of the Ontario Supreme Court, Côté A.C.J. held that the premises leased to the Maison des jeunes Inc. had not been used as a "private dwelling". He noted that respondent had taken the trouble to amend the standard lease issued by the Régie des loyers by replacing the word "residence" in the description of the purpose of the premises leased with the word "meeting", so that the amended clause read [TRANSLATION] "These premises will be occupied as a meeting‑place".
In Côté A.C.J.'s opinion, respondent changed the use of the insured premises by leasing an apartment to the Maison des jeunes Inc. This change in use had the effect of so altering the subject‑matter of the insurance that the latter no longer corresponded to the description of it in the insurance contract. He accordingly found in appellant's favour and dismissed respondent's action: [1985] C.S. 608.
Court of Appeal
A majority of the Court of Appeal reversed the Superior Court's judgment on November 24, 1987: [1988] R.J.Q. 1, 21 Q.A.C. 90.
LeBel J.A., which whom Beauregard J.A. concurred, considered that respondent's act in leasing the premises for social activities did not alter the purpose for which the insured building was used. The parties to the insurance contract had not specifically defined what they meant by "a private dwelling". The activities of the Maison des jeunes Inc., which entailed supervised social gatherings, were very little different from those which from time to time might occur in any family having adolescents or young people among its members. In LeBel J.A.'s opinion, there was nothing in these activities inconsistent with the concept of a private residence. He concluded that the fact that one of the four apartments had been leased to the Maison des jeunes Inc. did not alter the general purpose for which the insured building was used.
The majority of the Court of Appeal also dismissed appellant's argument that the use of the premises leased to the Maison des jeunes Inc. for social gatherings was an aggravation of risk within the meaning of art. 2566 C.C.L.C. Citing Alliance Insurance Co. of Philadelphia v. Laurentian Colonies and Hotels Ltd., [1953] Q.B. 241, LeBel J.A. considered that the materiality of changes in the use of premises is a question of law, and that the findings of the trial judge are not binding on the Court of Appeal. LeBel J.A. felt that appellant had not discharged its obligation of establishing that the use of the leased apartment was an aggravation of risk which might have led a reasonable insurer to rescind the insurance contract or to change the premium rates. In the opinion of LeBel J.A. appellant's administrative policy, which might have led it to cancel the insurance policy if it had known of the use of the premises, could not be a basis for a refusal by appellant to compensate respondent.
Galipeau J.A. (ad hoc), dissenting, concurred in the opinion of the trial judge. He felt that Côté A.C.J. had not erred in finding that occupancy of one of the apartments by the Maison des jeunes Inc. was a change in use, deciding that such a use aggravated the risk and concluding that the insurer would have refused to insure the risk. Galipeau J.A. was also the only one of the lower court judges to discuss the condition in the insurance policy which stipulated that any change in the use of the insured premises without the consent of the insured which had the effect of increasing the risk was a cause for cancelling the policy.
Point at Issue and Arguments Made by Parties
Essentially, the point at issue is whether appellant's refusal to compensate respondent is justified. Its refusal will be justified if respondent, in leasing an apartment to the Maison des jeunes Inc. for social gatherings, so altered the subject‑matter of the insurance that it no longer corresponded with the description of the insured property given in the insurance policy. His refusal will also be justified if the leasing of the apartment to the Maison des jeunes Inc. created an aggravation of risk within the meaning of arts. 2566 and 2488 C.C.L.C. which a reasonable insurer would not have accepted if he had known of it. The parties formulated the points at issue more specifically. Appellant contended that the points at issue are the following:
[TRANSLATION]
1.May an insurer, in light of art. 2566 C.C., limit the field of his commercial activities by subscribing for specific risks and covering only certain classes of property or occurrences?
2.What criteria should apply in defining a reasonable insurer: should he be defined in comparison with other insurers, and which ones, or should he be defined arbitrarily, according to an objective or subjective criterion?
Respondent, for his part, formulated the points at issue as follows:
[TRANSLATION]
1.Did the Court of Appeal have the right to conclude contrary to the Superior Court that the lease made with Maison des jeunes Inc. of Charny was not an aggravation of the risk?
2.If the answer to the first question is no, can a reasonable insurer in the circumstances be the specific insurer only -‑ the insurer in concreto -‑ which here is saying that it would not have covered the risk in question?
Appellant devoted most of its argument to the concept of the materiality of the facts which the insured had a duty to make known to the insurer. In appellant's submission, there is a conflict in the case law which makes it difficult or impossible to know whether a particular fact is material. The decided cases suggest three criteria of materiality. The first, very objective, criterion requires that the fact be directly connected with the actual nature of the risk covered: Alliance Insurance Co. of Philadelphia, supra, and Madill v. Lirette, [1987] R.J.Q. 993 (C.A.) The second holds that materiality of the fact can be determined from the practice of insurers: Car & General Insurance Corp. v. Therrien, [1969] Q.B. 144. The third, subjective, criterion appears to accept that materiality depends on the particular circumstances giving rise to the risk at issue: Pincourt Restaurant Inc. v. United States Fire Insurance Co., [1987] R.R.A. 444 (C.A.)
Appellant proposed that a uniform approach be adopted. It argued that uniformity on the question of materiality could be achieved if the latter were
[TRANSLATION] . . . determined on the basis of a number of factors, which could vary with each case. We can undoubtedly take into consideration the operations and practices of the insurer in question when the circumstances so require, the practice of other insurers and all the particular facts of the case. It thus follows that materiality is a question of fact left to be determined by the trial court.
Appellant accordingly asked that the Court of Appeal judgment be reversed and the Superior Court judgment reinstated.
Respondent subscribed to the opinion of the majority of the Court of Appeal. In respondent's submission, the majority of the Court of Appeal properly concluded that the lease to the Maison des jeunes Inc. did not essentially alter the subject‑matter of the insurance and that the use of the premises as a location for supervised meetings did not aggravate the risk. The Court of Appeal was not bound by the trial judge's findings in this regard, as materiality is a question of law.
Respondent argued that the precedents are not in conflict as regards the materiality of facts. The legislature itself has indicated in art. 2566 C.C.L.C. that the materiality of a fact is to be determined using the objective criterion of the "reasonable insurer", not in relation to the practices of the insurer in question. The Court of Appeal recently confirmed this interpretation of the term "reasonable insurer" in Madill v. Lirette, supra.
Respondent asked that the appeal be dismissed.
Analysis
In my view, the main question raised by the case at bar is the relationship between art. 2566 C.C.L.C. and the description of the subject‑matter of the insurance contained in the insurance policy. In this regard I feel that the parties have taken the wrong route. Before it is established that art. 2566 applies, the problems of interpreting that article and identifying the criteria of materiality do not arise. Our first task is therefore to determine whether leasing to the Maison des jeunes Inc. transformed the subject‑matter of the insurance or was simply an aggravation of the risk appellant agreed to cover. This task requires the Court to consider the interaction between art. 2566 C.C.L.C. and the definition of the subject‑matter of the insurance.
Article 2566 C.C.L.C., which incorporates art. 2488 mutatis mutandis, provides that the insured must inform the insurer of "any increase in the risk specified in the contract or that resulting from events within his control and which is likely to materially influence a reasonable insurer". However, the contract will not necessarily be cancelled if the insured neglects to inform the insurer of such increases in risk. Provided the insured is in good faith, the insurer is "liable for the risk in the proportion that the premium collected bears to that which it should have collected", unless the insurer establishes that it would not have covered the risk if it had known the true facts. Article 2500 provides that the third paragraph of art. 2566 may not be derogated from by stipulation, while the other provisions of art. 2566 may be derogated from only in so far as the derogation is more favourable to the policyholder or the beneficiary. These provisions are new: they were introduced into the Civil Code of Lower Canada in October 1976 and were then amended by the Act to amend the Act respecting insurance and to again amend the Civil Code, S.Q. 1979, c. 33. Professor Belleau explains in his article "Réflexions sur les origines et l'interprétation de certains articles du Code civil en matière d'assurance" (1987), 21 R.J.Q. 223, at p. 226, that arts. 2488 and 2566 C.C.L.C. are based on the French statute of July 13, 1930:
[TRANSLATION] Additionally, most of the new rules as regards damage insurance were borrowed from the French statute of July 13, 1930 dealing with the insurance contract. Some borrowings are direct importations from French law; others have been taken from the Faribault Report, which in the late fifties proposed a complete reform of Quebec insurance law modelled on the French statute of 1930. The use of French solutions may also be explained by the limited interest shown by the general insurance sector at that time in this reform of the Civil Code dealing with insurance. Accordingly, to cope with the absence from Quebec law of general rules applicable to all damage insurance, the drafters had no choice but to turn to French law and the Faribault Report.
In fact, the extent of the influence of the French statute can be seen by comparing the wording of ss. 17 and 22 of this statute (ss. L.113‑4 and L.133‑9 since the codification of French insurance law in 1976) with arts. 2566 and 2488 of the Civil Code:
[TRANSLATION] 17. [L.113‑4] When the insured by his own act increases the risk so that, if the new state of affairs had existed at the time of the contract, the insurer would not have contracted or would only have done so for a higher premium, the insured must first make this known to the insurer by registered mail.
When the risk is increased without any act by the insured, the latter must make this known by registered mail within not more than eight days from the time he learns of the increased risk.
In either case, the insurer has the option of rescinding the contract or of offering a new premium rate. If the insured does not accept this new rate the policy will be rescinded and the insurer, in the situation described in paragraph one above, retains the right to claim compensation in the courts.
However, the insurer can no longer rely on the increase in risk when, having been informed of this in any way, he indicates his consent to continuing the insurance, in particular by continuing to receive premiums or by paying compensation after a loss has occurred.
22. [L.113‑9] Any omission or inaccurate statement by an insured who is not shown to have acted in bad faith shall not cause the insurance to be void.
If it is discovered before any loss has occurred, the insurer is entitled either to continue the contract in return for the acceptance of an increased premium by the insured or to rescind the contract ten days after notifying the insured by registered mail, and returning the portion of the premium paid for the time that will not be covered by the insurance.
If the discovery is not made until after a loss has occurred, the compensation will be reduced in the proportion of the premium rate paid to the premium rate which would have been due if the risk had been fully and exactly stated.
2566. The insured must promptly advise the insurer of any increase in the risk specified in the contract or that resulting from events within his control and which is likely to materially influence a reasonable insurer in the setting of the rate of the premium, the appraisal of the risk or the decision to continue to insure it.
The insurer may then cancel the contract in accordance with article 2567 or propose in writing a new rate of premium which the insured must accept and pay within thirty days of its receipt, failing which the policy ceases to be in force.
The insurer is deemed to have acquiesced in the change communicated to him if he continues to accept the premiums or pays an indemnity after a loss.
If the insured fails to discharge his obligation under the first paragraph, article 2488 applies mutatis mutandis.
2488. In damage insurance, unless the bad faith of the proposer is established, the insurer is liable for the risk in the proportion that the premium collected bears to that which it should have collected, except where it is established that it would not have covered the risk if it had known the true facts.
The obligation of the insured to inform the insurer of an increase in the risk is not as great in French law as under the Civil Code. Section 15 of the statute of 1930 (now s. L.113‑2) describes the obligations of the insured. Paragraph 3 of that section reads as follows:
[TRANSLATION] 3o To inform the insurer in accordance with section 17 [L.113‑4] of the circumstances specified in the policy the effect of which is to increase the risk;
Under this provision, the insured only has to inform the insurer of circumstances specifically mentioned in the insurance policy: Picard and Besson, Les assurances terrestres (5th ed. 1982), t. 1, at p. 132. On the other hand, under art. 2566 C.C.L.C., the insured must inform the insurer not only of the risks specified in the contract but also of any risk resulting from events within his control.
French insurance law and the provisions of the Civil Code dealing with insurance also differ in the concepts of a "reasonable insurer" and "material influence" contained in art. 2566 C.C.L.C. There are two sources for these concepts: decisions of the courts prior to the reform of Title Fifth of the Civil Code and the uniform legislation of other Canadian jurisdictions. Before the reform of the Civil Code dealing with insurance, the insured's obligation to make a declaration was covered by art. 2485 C.C.L.C.:
2485. The insured is obliged to represent to the insurer fully and fairly every fact which shows the nature and extent of the risk, and which may prevent the undertaking of it, or affect the rate of premium.
The Quebec courts had long accepted that art. 2485 required that only material facts be represented. In 1953, the Court of Appeal had held in Alliance Insurance Co. of Philadelphia, supra, that materiality was a mixed question of law and fact and that the materiality of a fact had to be determined objectively applying the criterion of the reasonable insurer or insurers in general, rather than the subjective criterion of the particular insurer.
All the Canadian common law provinces have adopted legislation imposing a uniform condition on all fire insurance contracts. This condition requires, if the insurance contract is not to be avoided, that the insured inform the insurer of any change material to the risk:
4. Any change material to the risk and within the control and knowledge of the insured avoids the contract as to the part affected thereby, unless the change is promptly notified in writing to the insurer or its local agent, and the insurer when so notified may return the unearned portion, if any, of the premium paid and cancel the contract, or may notify the insured in writing that, if he desires the contract to continue in force, he must, within fifteen days of the receipt of the notice, pay to the insurer an additional premium, and in default of such payment the contract is no longer in force and the insurer shall return the unearned portion, if any, of the premium paid.
In their text titled Insurance Law in Canada (1982), at p. 101, Professors Brown and Menezes explain that at common law a fact will be material if "proper disclosure would influence a reasonable insurer to decline the risk or stipulate for a higher premium". The sources of art. 2566 C.C.L.C. are thus the case law developed by the Quebec courts before the insurance law reform, the uniform legislation of the common law provinces of Canada and French insurance law. The special contribution of French law is the introduction of the idea of proportional compensation in the event of an increase in risk which is not notified.
The relationship between art. 2566 C.C.L.C. and the definition of the subject‑matter of the insurance is complicated in the case at bar by the fact that the insurance policy contains a condition that appears to deal with the factual situation presented by the case:
[TRANSLATION] 3. Any alteration in the use or condition of the thing insured from those to which it is limited by the policy, made without the consent of the insurer, by means within the control of the insured or with his knowledge, and which increases the risk, will be a basis for cancelling the policy unless the company, or its local agent, is promptly notified of such change; and when so notified the company may return the premium for the unexpired period and cancel the policy, or it may propose an additional premium in writing, which if the insured wishes to continue the policy he shall pay to the company forthwith: if the insured fails to make such payment forthwith on receiving such proposal, the policy shall cease to be in effect.
This stipulation presents certain problems of interpretation, and unfortunately none of the parties seems to have thought it necessary to refer to the matter in their argument. The first part of the condition adopts word for word the text of the old art. 2574 C.C.L.C.; the second part appears to be taken from the provisions of art. 2566, which replaced the old art. 2574 C.C.L.C. There are contradictions between the provisions of art. 2566 C.C.L.C., which are of public order, and those of condition 3. To begin with, condition 3 requires that the insured inform the insurer of the risks specified in the policy even if those risks are not likely to "materially influence a reasonable insurer in the setting of the rate of premium, the appraisal of the risk or the decision to continue to insure it", to use the words of art. 2566 C.C.L.C. Article 2566 C.C.L.C. and condition 3 also differ in that condition 3 provides that the contract will be void if the insured fails to inform the insurer of the specified risks. Clearly, this stipulation contradicts paragraph 4 of art. 2566 C.C.L.C.: it is therefore without effect to the extent of the contradiction. An insurer may not escape the peremptory provisions of the insurance law reform by reproducing in the contract the terms of legislation that has now been superseded. If condition 3 was amended to make it consistent with art. 2566, the condition would be hardly different from that article. For all practical purposes, then, the only purpose served by condition 3 is to require the insured to notify the insurer of the existence of the specified risks, namely a change in the condition or use of the insured property. Condition 3 is not helpful in solving the questions presented by the case at bar.
Because arts. 2566 and 2488 C.C.L.C. were not introduced into Quebec law until 1976, academic commentary and court decisions in Quebec dealing with the relation between an aggravation of the risk covered and a change in the subject‑matter of the insurance are few and far between, if they exist. In France, on the other hand, it has been possible to obtain proportional compensation in cases of increased risk since the thirties, and French jurists have had occasion to discuss this matter. Several writers, such as Professor Lambert‑Faivre (Droit des assurances (5th ed. 1985), at pp. 142‑43), Mr. Jacob (Les assurances (2nd ed. 1979), at pp. 106‑7) and Professors Picard and Besson (Les assurances terrestres, op. cit.) indicate that it is difficult to distinguish increased risk from exclusion of risk. Professors Picard and Besson distinguish them as follows, at p. 135 of their text:
[TRANSLATION] On the other hand, one must distinguish between aggravation of risk and exclusion of risk or non‑insurance. The distinction really rests on a question of nature between aggravation and exclusion of risk: in either case, we are concerned with a risk which was not assumed by the insurer under the contract. Looking at the two situations, however, the intent of the parties and in particular of the insurer is not the same and does not have the same consequences. When there is an exclusion of risk, the insurer expressly indicates his intent never to cover the risk excluded: he states in advance that he will not assume it, so that if the excluded risk occurs or if, what amounts to the same thing, a loss occurs outside the specific conditions stated by the policy, the insured will not be entitled to any coverage: in such a case there will simply be no insurance . . . Aggravation of risk, on the contrary, is a risk which though not assumed in the contract is capable of being subsequently covered by it. An insurer certainly does not specifically undertake to guarantee increased risks; but he does not categorically refuse to cover them, reserving the right to assess the situation subsequently and, depending on the circumstances, to require a higher premium or to rescind the contract . . .
Accordingly, to determine whether the case at bar is one of increased risk or exclusion of risk, it will be necessary to identify from a careful reading of the insurance policy what the insurer intended to insure. Once the subject‑matter of the insurance has been identified, it must be determined whether the insurer has indicated his intent to insure the risk which has occurred. The policy describes the subject‑matter of the insurance contract in clear terms. Under the heading [TRANSLATION] "Insured Property", para. (i) of clause (a) reads as follows:
[TRANSLATION] If the insurance limits and premiums determined are stipulated in the Declarations of this policy under coverage A ‑‑ DWELLING PLACES ‑‑ BUILDINGS ‑‑ for risks OF FIRE OR FIRE AND SUPPLEMENTARY COVERAGE only: this rider covers up to and including these limits, the buildings as defined herein, while occupied solely as PRIVATE DWELLINGS or used as PRIVATE SUMMER OR SEASONAL RESIDENCES, as the case may be (or if they are in the course of construction, which are to be occupied in this way) and located on the premises at the site or sites indicated. [Emphasis added.]
It is apparent from the passage underlined that the insurer intended to insure against fire a building occupied solely for residential purposes. It is also clear that the Maison des jeunes Inc. was using the leased premises for other than residential purposes. The apartment was only occupied for a few hours a day, no meals were prepared or eaten on the premises and no one spent the night in the apartment. As the trial judge pointed out, respondent himself appears to have admitted the non‑residential nature of the use of the leased premises, since he amended the standard lease to indicate that the apartment would be occupied as a meeting‑place and not as a dwelling‑place. In light of these facts, it cannot be said that respondent's property was "occupied solely as a private dwelling" as stipulated in the insurance policy. Accordingly, the facts disclose an "exclusion of risk" rather than an aggravation of risk. Respondent insured his building against fire while it was used exclusively for residential purposes, but the loss in the case at bar occurred when the building was used for mixed purposes. In short, the risk which occurred was not that covered by the insurance policy.
In view of my finding that the insurance did not cover the loss suffered by respondent, I do not think it is necessary to determine whether the leasing of the apartment to the Maison des jeunes Inc. aggravated the risk within the meaning of art. 2566 C.C.L.C. Article 2566 C.C.L.C. provides that the insured must communicate any aggravation of risk, not any change in the subject‑matter of the insurance. This obligation is clearly premised on the assumption that the subject‑matter of the insurance will remain the same, without regard to any event or circumstance that might aggravate the risk.
As to costs, it is not appropriate that any be awarded in this Court, as the appeal was brought by the insurer on a question of principle rather than in connection with this particular dispute.
Conclusion
For the foregoing reasons I would allow the appeal and, reinstating the trial judgment, I would dismiss the action with costs at trial and in the Court of Appeal but make no award of costs in this Court.
Appeal allowed.
Solicitors for the appellant: Robinson, Sheppard, Borenstein, Shapiro & Associés, Montréal.
Solicitors for the respondent: Flynn, Rivard, Québec.