Goulet v. Transamerica Life Insurance Co. of Canada, [2002] 1 S.C.R. 719, 2002 SCC 21
Transamerica Life Insurance Co. of Canada Appellant
v.
Danielle Goulet Respondent
Indexed as: Goulet v. Transamerica Life Insurance Co. of Canada
Neutral citation: 2002 SCC 21.
File No.: 27939.
2001: November 8; 2002: March 8.
Present: McLachlin C.J. and L’Heureux‑Dubé, Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for quebec
Insurance — Life insurance — Intentional fault — Public order exception — Insured dying while committing a crime — Insurer refusing to pay beneficiary life insurance proceeds — Whether act committed amounts to intentional fault of insured — Whether public order exception that “no one may profit from his or her own crime” exists in Quebec insurance law — If so, whether exception is a bar to beneficiary’s right to claim insurance indemnity — Civil Code of Lower Canada, arts. 2532, 2550.
The respondent’s husband died in 1994 when a bomb he was attempting to plant in a car exploded. The respondent, in her capacity as designated beneficiary, claimed the indemnity provided for in the insurance policy her husband had taken out on his own life in 1990. Notwithstanding the fact that there was no clause precluding payment of the indemnity if the insured died while committing a crime, the insurer refused to pay. It maintained that public order justified refusal to pay when the death had occurred during the commission of a crime. The respondent brought an action against the insurer and was successful in the Superior Court and the Court of Appeal.
Held: The appeal should be dismissed. The respondent is entitled to the life insurance proceeds.
An insurer never insures the intentional fault of the insured. Although it is part of the chapter on damage insurance, art. 2563 C.C.L.C. expresses that principle, which derives from the nature of the insurance contract. In the context of a life insurance contract, the suicide of the insured during the first two years of the coverage (art. 2532) and an attempt on the life of the insured by the owner of the insurance contract (art. 2559) are the only intentional acts, within the parameters established by the Civil Code of Lower Canada, that affect the risk of death, and particularly, the time at which the event that is the object of that risk occurs. In this case, the act committed by the insured was not an intentional act since there is no evidence to show that he was seeking to bring about the event that is the object of the risk and the damage itself. According to the admissions at the trial, the insured was obviously committing a serious indictable offence when he died, but he did not intend to end his life. The incident that occurred was still contingent.
The principle of public order that “no one may profit from his or her own crime” exists in Quebec insurance law. First, the Quebec courts applied this principle before the 1976 insurance law reform. Second, there is nothing in the new provisions of 1976 to suggest that the legislature intended to preclude it. While this principle prevents the insured or the person entitled to receive the insurance indemnity from profiting from his or her own crime, insurance law does not preclude the protection of innocent third persons or beneficiaries from the consequences of criminal activity. To prevent innocent third persons or beneficiaries from claiming the indemnity, the insurance contract must contain a clause specifically providing that the insurer is not required to pay the indemnity if the insured dies in the commission of an indictable offence. Article 2550 C.C.L.C. cannot be used to deprive the innocent beneficiary of his or her claim where the insured died when committing an indictable offence. That article, which constitutes an exception to the principle of the privity of contracts, allows the insurer to set up against the beneficiary all of the causes of nullity or forfeiture that are based on the existence of the contract, but it may not set up against the beneficiary causes of nullity or forfeiture that are purely personal to the insured. Article 2550 therefore does not allow the insurer to set up the public order rule that “no one may profit from his or her own crime”, which it could have asserted against the insured, against the innocent beneficiary of the insurance contract.
Cases Cited
Referred to: Oldfield v. Transamerica Life Insurance Co. of Canada, [2002] 1 S.C.R. 742, 2002 SCC 22; Schilling Estate v. Transamerica Life Insurance Co. of Canada (1997), 108 O.A.C. 306, aff’g (1997), 40 C.C.L.I. (2d) 237; Brissette Estate v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87; Canadian Indemnity Co. v. Walkem Machinery & Equipment Ltd., [1976] 1 S.C.R. 309; Mutual of Omaha Insurance Co. v. Stats, [1978] 2 S.C.R. 1153, aff’g (1976), 14 O.R. (2d) 233; Pickford Black Ltd. v. Canadian General Insurance Co., [1977] 1 S.C.R. 261; Cass. civ. 1st, March 3, 1993, R.G.A.T. 1993.648 (Castrassur v. Camat); Godbout v. Longueuil (Ville de), [1995] R.J.Q. 2561, aff’d [1997] 3 S.C.R. 844; Brasserie Labatt ltée v. Villa, [1995] R.J.Q. 73; Cameron v. Canadian Factors Corp., [1971] S.C.R. 148; Bélair v. Lasalle, [1970] C.A. 275; Foncière Compagnie d’Assurance de France v. Perras, [1942] Que. K.B. 231, aff’d [1943] S.C.R. 165.
Statutes and Regulations Cited
Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57, s. 4.
Civil Code of Lower Canada, arts. 13, 2468, 2481, 2500, 2502, 2532, 2550, 2559, 2560, 2563, 2578 (former).
Civil Code of Québec, S.Q. 1991, c. 64, art. 2402.
Authors Cited
Bergeron, Jean-Guy. Les contrats d’assurance (terrestre): lignes et entre-lignes, t. 2. Sherbrooke: Éditions SEM, 1992.
Karim, Vincent. “L’ordre public en droit économique: contrats, concurrence, consommation” (1999), 40 C. de D. 403.
Lefebvre, Brigitte. “Quelques considérations sur la notion d’ordre public à la lumière du Code civil du Québec”, dans Développements récents en droit civil. Cowansville, Qué.: Yvon Blais, 1994, 149.
Picard, M., et A. Besson. Les assurances terrestres en droit français, t. 1, 4e éd. Paris: L.G.D.J., 1975.
APPEAL from a judgment of the Quebec Court of Appeal, [2000] R.J.Q. 1066, [2000] R.R.A. 325, [2000] Q.J. No. 1308 (QL), affirming a judgment of the Superior Court, [1996] R.R.A. 1131, [1996] Q.J. No. 3561 (QL). Appeal dismissed.
Alain Létourneau and René Vallerand, for the appellant.
Jean Blaquière, for the respondent.
English version of the judgment of the Court delivered by
LeBel J. —
I. Introduction
1 On October 11, 1990, Transamerica Life Insurance Company of Canada issued a life insurance policy on the life of Roger Arbic. As policyholder, Arbic designated his spouse, Danielle Goulet, the respondent, as beneficiary. On January 22, 1994, while the policy was still in effect, Arbic was killed when a bomb he was attempting to plant in a car parked at Dorval Airport, near Montréal, exploded.
2 Goulet claimed the $50,000 insurance indemnity solely in her capacity as beneficiary and not as her husband’s heir or as representative of the estate. The insurer refused to pay. Notwithstanding the fact that there was no clause precluding payment of the indemnity if the insured died while committing a crime, the insurer replied that public order justified refusal to pay when the death had occurred during the commission of a crime.
3 Faced with this refusal, Goulet brought an action against Transamerica. At the trial, she conceded that, on a balance of probabilities, Arbic had died while committing an indictable offence. Nonetheless, she was successful in the Superior Court and the Court of Appeal. The insurer’s appeal to this Court was heard at the same time as an appeal raising similar issues in a case that originated in Ontario (Oldfield v. Transamerica Life Insurance Co. of Canada, [2002] 1 S.C.R. 742, 2002 SCC 22). For the reasons set out below, I am of the view that the appeal should be dismissed.
II. Judicial History
A. Superior Court, [1996] R.R.A. 1131
4 Crépeau J. allowed Ms. Goulet’s action. In essence, he found that the public order exception on which Transamerica relied could not be set up against the plaintiff. He also rejected the argument based on the allegedly intentional nature of the act.
5 Crépeau J. began by making a series of preliminary comments concerning the application of the Civil Code of Lower Canada (“C.C.L.C.”) to the action (at pp. 1133-34):
[translation] In this case . . ., we must refer to the Civil Code of Lower Canada to determine the meaning and scope of the parties’ rights and obligations and the effects of the contract [s. 4 of the Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57].
. . .
. . . before applying the common law, we must ensure that the Civil Code does not contain any provisions relating to this issue.
. . . generally, it is up to the parties to an insurance contract to establish the limits the risk covered and the conditions on which the indemnity is payable [contractual freedom].
6 Crépeau J. then acknowledged that few exclusions in the C.C.L.C. are applicable to life insurance. He said that general clauses providing for forfeiture of the policy for violation of the law, unless the violation constitutes an indictable offence, are prohibited by the C.C.L.C. (art. 2481) and by the Civil Code of Québec, S.Q. 1991, c. 64 (art. 2402).
7 Crépeau J. was of the view that the legislature had established the circumstances in which the insurer could rely on public order in the C.C.L.C. in respect of “Insurance of persons” to refuse to honour a claim. The courts have no further authority to add more public order exclusions to the C.C.L.C. Furthermore, in the view of Crépeau J., the insurer retains a free hand to include the exclusions it wants in the contract, in accordance with the principles set out in the Civil Code.
8 The judge noted that the insurer in this case had not made the policy subject to any exclusion, with the exception of suicide occurring within two years of the issuance of the policy. Since there was no clause excluding indictable offences, he found that the insurer had to honour the provisions of the contract.
9 Crépeau J. rejected the appellant’s argument under art. 2563 C.C.L.C., which provides that the insurer is relieved of liability for the prejudice caused by the intentional fault of the insured: art. 2563 is to be found under the chapter “Of Damage Insurance” and therefore does not apply to life insurance, where the concept of intentional act is relevant only to suicide.
B. Court of Appeal, [2000] R.J.Q. 1066
10 Transamerica suffered another setback in the Court of Appeal. For reasons differing in part, Rothman and Nuss JJ.A. both found that Goulet’s action was well founded and the insurance payment was payable.
(1) Rothman J.A.
11 Rothman J.A. first addressed the appellant’s argument that the insured, as a result of his intentional and deliberate conduct, had increased the risk of death so that death was no longer the uncertain event covered by the insurance policy. Rothman J.A. rejected that argument. First, under a clause in the insurance contract, even if the insured had deliberately killed himself, the beneficiary could nonetheless have collected the amount insured. There was no evidence to show that the insured knew he was going to die when he planted the bomb. Even though planting a bomb is an inherently dangerous activity, it is wrong to say that the death that resulted was not an accident. The death that resulted from the insured’s act was not reasonably sure.
12 However, Rothman J.A. then dissociated himself from the opinion of Crépeau J. that art. 2563 C.C.L.C. relating to the intentional fault of the insured applies only to damage insurance. In Rothman J.A.’s view, that principle is intrinsically connected with the concept of “risk” in insurance contracts, but he said that art. 2563 C.C.L.C. was of no help to the appellant in this case (at p. 1070):
That being said, however, the fault or act committed by the insured must be one that is intended to cause the loss or damage for which the insurance claim is made. The insured must have intended to bring about the realisation of the risk insured against, and not merely to do the act that he did. It is insufficient for the insured to have intended merely a negligent or a blameworthy act, if that act was not intended to cause the loss and the loss was accidental.
13 Rothman J.A. also addressed the issue of public order. In his view, even in the absence of a specific policy exclusion, the principles of public order could be invoked by an insurance company to prevent a criminal from profiting from his crime. Therefore, an insured who had deliberately caused the loss covered by his insurance policy by committing an indictable offence should not be entitled to recover the amount insured, nor could his estate claim that amount. But in this case, the beneficiary under the policy was innocent. Allowing her to benefit from the insurance contract would not enable the insured to profit from his crime. The opposite approach would hurt innocent beneficiaries (at p. 1071):
We should, I think, be slow to extend a rule of public order which was designed to prevent criminals from profiting from their crimes so as to enable insurers to refuse amounts due under insurance policies to innocent beneficiaries who have had nothing whatever to do with these crimes and who do not claim as the representatives of the criminals who have committed them.
14 Furthermore, art. 2550 C.C.L.C. confirms that the beneficiary named in an insurance contract does not represent the insured and that the sum paid under the insurance policy does not form part of the estate of the insured. In the opinion of Rothman J.A., the beneficiary of the insurance policy is a creditor of the insurer in her own right and for her own benefit.
15 Rothman J.A. acknowledged that art. 2550 C.C.L.C. allows the insurer to set up against the beneficiary the causes of nullity of the contract that may be invoked against the insured, as well as the exclusion clauses provided in the insurance policy (e.g. suicide clauses). However, that provision does not prevent the beneficiary from claiming the amount insured in this case (at p. 1073):
But the rule of public order precluding a criminal from obtaining the insurance benefits of his crime is, in my view, a forfeiture of a different kind. It is a personal sanction of forfeiture applicable to the criminal, the purpose of which is to prevent the criminal or his estate from obtaining any benefits from his crime. Its purpose is not to vitiate the insurance contract or to extinguish the rights of other innocent beneficiaries having claims under the policy.
16 Rothman J.A. then noted that the insurance company should have expressly provided an exception in the insurance contract for death resulting from the commission of an indictable offence. Article 2481 C.C.L.C. clearly allows it to do so.
(2) Nuss J.A. (Reasons Concurred in by Deschamps J.A.)
17 Nuss J.A. agreed with the reasons of Rothman J.A. However, he considered that for the purposes of this case it was not necessary to decide whether the estate of an insured who had committed an indictable offence may benefit from the insurance contract.
III. Relevant Statutory Provisions
18 Civil Code of Lower Canada
13. No one can by private agreement, validly contravene the laws of public order and good morals.
2468. A contract of insurance is that whereby the insurer undertakes, for a premium or assessment, to make a payment to a policyholder or a third person if an event that is the object of a risk occurs.
2481. Every general clause releasing the insurer if any act or regulation is violated is without effect, unless such violation constitutes an indictable offence.
2500. Any stipulation which derogates from the prescriptions of articles 2474, 2478 to 2484, 2486, 2490 to 2492, 2494 to 2506, 2508, 2510 to 2515, 2518, 2529, 2530, the second paragraph of article 2533, articles 2536, 2538, 2539, 2541, 2546 to 2549, 2557, 2559, 2560, 2561, 2562, the second paragraph of article 2563, article 2564, the third paragraph of article 2566, articles 2574, 2577 to 2582, 2585, the first two paragraphs of article 2586, articles 2587, 2598, 2599 and 2601 to 2605 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 articles 2485, 2488, 2489, 2516, 2517, 2519 to 2522, 2523 to 2528, 2532, the first paragraph of 2533, articles 2534, 2535, 2537, the first paragraph of article 2563, the first, second and fourth paragraphs of article 2566, articles 2567 to 2570, 2572, 2573, 2575, 2583, the third paragraph of article 2586, articles 2589 to 2591 and 2594 to 2597 is without effect.
2502. In any accident and sickness insurance policy, the insurer must also indicate expressly and clearly the nature of the coverage stipulated therein; if the insurance is conditional upon disability, it must, in the same manner, indicate the conditions of payment of the indemnities.
The insurer cannot invoke exclusions or clauses of reduction of coverage except those clearly indicated under an appropriate title, such as the following: “Exclusions and Reduction of Coverage”.
2532. Suicide of the insured is not a cause of nullity. Any stipulation to the contrary is without effect if the suicide occurs after two years of uninterrupted insurance.
2550. The beneficiary and the contingent owner are the creditors of the insurer but the insurer may set up against them the causes of nullity or forfeiture that may be invoked against the policyholder or the participant.
The sum insured payable to a beneficiary does not form part of the estate of the insured. Similarly, the contract transferred to the contingent owner does not form part of the estate of the preceding owner.
2559. An attempt on the life of the insured by the owner of the contract entails ipso facto the nullity of the insurance and the payment of the surrender value.
2563. The exclusion of the prejudice caused by a fortuitous event or the fault of the insured is not valid unless it is expressly and restrictively set out in a stipulation in the contract.
However, the insurer is not liable, notwithstanding any agreement to the contrary, for prejudice arising from the insured’s intentional fault.
IV. Analysis
A. Issues
19 This appeal raises two issues. First, we must determine whether the act committed amounts to an intentional fault of the insured, which cannot constitute an insurable risk. Second, if this is not the case, we must consider whether there is a public order exception and how it is to be applied, in order to determine whether it is a bar to Ms. Goulet’s claim. Those issues will be analyzed in accordance with the C.C.L.C. As a result of the date when the insurance contract was made, s. 4 of the Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57, provides that the legislation that applied at the time continues to govern the interpretation and application of the agreement. The new law does not seem, however, to have made any significant changes to the former law, which applies to the legal issues I will now address.
B. Arguments of the Parties
(1) Appellant
20 First, the appellant said that the Court of Appeal could not have made the application of the public order rule dependent on the identity or status of the person claiming the life insurance proceeds. In its view, it would be illogical to conclude this: either the effects of the contract are suspended by the insured’s acts or they are not. Moreover, it added that the conclusion of the Quebec Court of Appeal was contrary to the decision of the Ontario Court of Appeal in Schilling Estate v. Transamerica Life Insurance Co. of Canada (1997), 108 O.A.C. 306, affirming the trial judgment (1997), 40 C.C.L.I. (2d) 237, and the decision of this Court in Brissette Estate v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87.
21 In support of its argument, the appellant cited art. 2550 C.C.L.C.:
2550. The beneficiary and the contingent owner are the creditors of the insurer but the insurer may set up against them the causes of nullity or forfeiture that may be invoked against the policyholder or the participant.
22 The appellant submitted that this provision means that the insurer may set up against the beneficiary the causes of nullity or forfeiture that may be invoked against the policyholder or the participant. None of them have been precluded by the legislature. When the legislature provides that the insurer is entitled to set up against the beneficiary the causes of nullity or forfeiture that may be invoked against the policyholder or the participant, it is referring to all causes of nullity and forfeiture. Therefore, unless the legislature has expressed some contrary intention, it is not open to the courts to limit the scope of the rule enacted. By making the distinction it made, the Court of Appeal stripped art. 2550 of its legal meaning and assumed a legislative role.
23 Second, the appellant argued that the Court of Appeal erred by requiring that the insured have intended that an event that is the object of the risk insured against (namely, death) occur when he committed the indictable offence, as a condition for the public order defence to apply. The public order defence would be triggered by the insured’s wrongful or criminal conduct and not because of a specific intention that an event that is the object of the risk insured occur.
24 Moreover, the appellant pointed out that an insured who, by his conduct, alters the nature of the risk by hastening the occurrence of an event that is the object of the risk relieves the insurer of its obligation. The element of uncertainty in the policy must exist not only at the time the contract is made but also when the event that is the object of the insurance occurs. The appellant said that the act committed by Mr. Arbic exposed him, objectively, to death, and that in fact he eliminated the uncertainty of the event against which he was insured.
25 The appellant’s final argument was that art. 2481 C.C.L.C. does not require that the insurer add a clause to the contract excluding the application of the insurance policy if an indictable offence is committed by the insured. It submitted that such an exclusion is already provided for by the rules of public order: by definition, an indictable offence cannot be the subject of an insurance contract because this would be contrary to good morals and public order. In the appellant’s submission, the interpretation adopted by the Court of Appeal amounts to saying that it is possible to insure oneself against one’s own crimes, a conclusion that would be contrary to good morals and public order. In the absence of a clear indication in the insurance policy that the parties intend to insure against death resulting from a criminal or wrongful act, it must be presumed that the parties did not intend to preclude the public order rule that prohibits the payment of the amount insured when death has occurred in circumstances of that nature.
(2) Respondent
26 First, the respondent submitted that the first issue raised by the appellant, public order, does not arise in this Court. In the respondent’s submission, the test used by the Court of Appeal is the intention of the insured to cause the occurrence of an event that is the object of the risk insured, in this case death, and not the principle that no one may benefit from his or her own crime. The Court of Appeal therefore unanimously held, as did the trial judge, that in the absence of an intentional act by Mr. Arbic, the respondent was entitled to receive the indemnity contracted for, even though the death of the insured occurred in the commission of an indictable offence. The respondent acknowledged that Rothman J.A. had in fact referred, for comparison, to the common law rule that a criminal may not benefit from his or her own crime. Ms. Goulet is nonetheless of the opinion that the basis of the decision of the Court of Appeal was to be found in the public order rules codified in the C.C.L.C. The public order principle codified in the C.C.L.C. is that no one may benefit from his or her own intentional act, whether criminal or otherwise (arts. 2559 and 2563 C.C.L.C.).
27 Second, the respondent examined the issue of whether there was intention to cause the occurrence of an event that was the object of the risk insured. The respondent submitted that in order to exclude a loss, it must result from a subjectively intentional act by the insured. Gross negligence would not suffice. In the respondent’s submission, the highly foreseeable consequences of the dangerous operations of the insured are still accidental (and not intentional) since the insured did not intend to cause the occurrence of the loss (Canadian Indemnity Co. v. Walkem Machinery & Equipment Ltd., [1976] 1 S.C.R. 309; Mutual of Omaha Insurance Co. v. Stats, [1978] 2 S.C.R. 1153; Pickford Black Ltd. v. Canadian General Insurance Co., [1977] 1 S.C.R. 261). The theory of “courting of the risk” cited by the appellant would therefore not be tenable. Moreover, in 1976, the legislature repealed former art. 2578 C.C.L.C., which restricted the notion of risk at the beginning of the title “Of Insurance”. That article read as follows:
2578. The insurer is liable for losses caused by the insured otherwise than by fraud or gross negligence.
28 In this case, the loss covered by the life insurance policy is the death of the insured. As the Court of Appeal pointed out, there is no evidence in the record, whether direct, circumstantial or by presumption, to show that the insured intended to cause the occurrence of the loss, that is, to take his life.
29 Furthermore, the respondent pointed out that by obstinately refusing to pay the indemnity provided in the insurance contract, the appellant confused principles designed to ensure public order that were developed in respect of insurance by the common law and applied those principles indiscriminately. And yet why, the respondent asked, when the Civil Code contains all of the rules needed in order to dispose of this case would we need to go looking for different rules in another system of law? In Ms. Goulet’s submission, the Court of Appeal and the trial judge were therefore correct in refusing to apply a majority of the precedents cited by the appellant since they had virtually all been decided under the common law.
30 In the recent legislative history of insurance law, the Quebec legislature has acted on several occasions to limit the principle of contractual freedom in what it regarded as matters of public order. This concern with matters of public order has been expressed in concrete legislative action. Because the public order principle cited by the appellant is not codified in the C.C.L.C., the courts cannot create it. The respondent also pointed out that art. 2481 C.C.L.C. allows insurers to specifically exclude the risk associated with the commission of an indictable offence. In the respondent’s submission, this rule implies an important corollary, which the appellant has tried to obfuscate: if the insurer can be relieved of the consequences of an indictable offence by providing an exclusion clause formulated in general terms, the insurer must bear the consequences of the loss when it fails to do so.
C. The Problems with the Intentional Fault
31 In support of its argument, the appellant cited a fundamental principle in insurance law: an insurer never insures the intentional fault of the insured. The insurance contract protects against the occurrence of the event that is the object of the risk. The contingent nature of that element makes the insurance transaction possible. This risk in fact constitutes the very purpose of the insurance contract, as defined by the Civil Code:
2468. A contract of insurance is that whereby the insurer undertakes, for a premium or assessment, to make a payment to a policyholder or a third person if an event that is the object of a risk occurs.
32 Although it is part of the chapter “Of Damage Insurance”, art. 2563 clearly expresses that principle, which derives from the nature of the insurance contract. (See J.-G. Bergeron, Les contrats d’assurance (terrestre): lignes et entre-lignes (1992), vol. 2, at p. 18.) Notwithstanding any agreement to the contrary, insurance does not cover losses resulting from the intentional fault of the insured:
2563. The exclusion of the prejudice caused by a fortuitous event or the fault of the insured is not valid unless it is expressly and restrictively set out in a stipulation in the contract.
However, the insurer is not liable, notwithstanding any agreement to the contrary, for prejudice arising from the insured's intentional fault.
33 It is important that the concept of intentional act be clearly understood. The insured must seek not only to bring about the event that is the object of the risk, but also to bring about the damage itself. In French law, which has strong similarities with Quebec insurance law on this point, the Cour de Cassation has clearly stated that rule (Cass. civ. 1st, March 3, 1993, R.G.A.T. 1993.648 (Castrassur v. Camat), note P. Rémy).
34 The Court of Appeal, per Rothman J.A., acknowledged that the rule codified in art. 2563 C.C.L.C. applied in the context of life insurance by virtue of its close connection with the concept of insurance itself. The fact that it is included under the chapter “Of Damage Insurance” does not alter the general nature of the principle it states (at p. 1070):
But the “intentional fault” principle reflected in article 2563, while under the heading of damage insurance, is not limited to cases of damage insurance only. The principle is fundamental to the notion of risk in insurance law and its “raison d’être” is obvious. The insured is not permitted, by his own intentional act, to bring about the realisation of the risk for which the insurance policy was issued.
35 The Court of Appeal applied the rules relating to the intentional fault of the insured and found that Mr. Arbic had not committed an “intentional fault” since he had not had the intention of ending his life when he planted a bomb under a car at Dorval Airport. In discussing the concept of “risk” in an insurance contract, the Court of Appeal also found that the theory of “courting the risk” could not apply in this case.
36 In its factum, the appellant repeated the analysis done by the Court of Appeal but came to a different conclusion. In its submission, an insured who, by his or her conduct, alters the risk or hastens the occurrence of an event that is the object of a risk relieves the insurer of its duty. Moreover, the risk must exist not only at the time the contract is made but also at the time the event that is the object of the insurance occurs. The appellant said that the act committed by Mr. Arbic had objectively exposed him to death. Furthermore, it said Mr. Arbic had eliminated the uncertainty of the event.
37 This argument, which relates to the concept of the risk in an insurance contract and the concept of intentional fault, does not have the effect ascribed to it by the appellant. The concept of intentional act in life insurance is governed specifically by art. 2532 C.C.L.C., with respect to the suicide of the insured, and arts. 2559 and 2560 C.C.L.C., with respect to an attempt on the life of the insured by a third person. In the case of suicide, as we know, the Civil Code provides a special rule, that the voluntary death of the insured is a cause of nullity only during the first two years of the coverage. Any stipulation to the contrary is without effect. The legislature has thus restricted the scope of the principle that intentional acts are excluded, and this undoubtedly stems from the fact that it would frequently be difficult to identify true suicides and their causes. That rule also undoubtedly expresses concern for protecting the interests of innocent third parties, a concern that is also found in the rules relating to attempts on the life of the insured. When the owner of the contract makes an attempt on the life of the insured, art. 2559 C.C.L.C. provides that the contract is null and that the surrender value must be repaid. Conversely, if the attempt is made by someone other than the owner, the only effect is forfeiture of the rights of the person who committed the attempt. Accordingly, in the context of a life insurance contract, the suicide of the insured and an attempt on the life of the insured are the only intentional acts, within the parameters established by the Civil Code, that affect the risk of death, and particularly, the time at which the event that is the object of that risk occurs (Bergeron, supra, at pp. 18‑20).
38 In this case, the act committed by Mr. Arbic was not an intentional act within the meaning of the rules referred to supra. According to the admissions at the trial, Mr. Arbic was obviously committing a serious indictable offence when he died. However, he did not intend to bring about his own death. The incident that occurred was still contingent. Subject to the public order exception cited by the insurer, the insurance policy continued to apply, absent a specific exclusion clause. I will now consider that exception.
D. Public Order Exception
39 The appellant argued that public order operates as a bar to the respondent’s claim. Under art. 2550, a person who commits a crime, and his or her legal representatives, may not claim the proceeds of an insurance policy when the loss has been caused by an indictable offence. In the appellant’s submission, the exception in this provision may be set up against the designated beneficiary.
40 At this stage of the analysis, it is important that the legal effect of the exception cited by the appellant be fully understood. Unlike the causes of nullity, such as false statements and non‑disclosure, the exception “no one may profit from his or her own crime” does not affect the initial validity of the insurance contract itself. Rather, it is a bar to the right to claim the indemnity provided by the policy, based on a principle of social morality. That principle would punish not only the person who committed the crime but also any beneficiary who could claim under the policy, even in the absence of any connection to the crime.
41 The respondent submitted that this exception does not exist in Quebec civil law. Accepting it would amount to improperly importing common law precedents into our civil law. Only the imperative rules, as so defined in the Civil Code, may be applied by the courts. Since the rule that no one may profit from his own crime is not stated in the Civil Code, the Quebec courts cannot create it judicially.
42 Ultimately, this argument denies that public order has been defined by the courts in Quebec private law. That argument is wrong. Civil law has long recognized the authority of the courts to define and develop these principles of fundamental law, or rules of community life, that inform the entire manner in which private law applies. In practice, due to the convergence of the values of Western societies, it should come as no surprise that there are major similarities in terms of the substance of public order in the various legal systems.
43 Most of the principles of public order, of course, are codified in the C.C.L.C. or the Civil Code of Québec. However, the statutes and regulations do not provide an exhaustive list of the principles of public order. Those principles may be created by the courts. As Baudouin J.A. pointed out in Godbout v. Longueuil (Ville de), [1995] R.J.Q. 2561 (C.A.), at p. 2570 (aff’d [1997] 3 S.C.R. 844):
[translation] Public order, in Quebec, may not be defined solely as the values protected by the charters or by ordinary legislation. In other words, this concept does not consist solely of a legislative corpus and the task of defining the substance of that concept is not within the purview of the legislature (arts. 9, 1373, 1413 C.C.Q.).
Public order is also defined by the courts, whose duty it is to give it sanction and mould it, having regard to the fundamental values of the society at a particular point in its development.
(See also Brasserie Labatt ltée v. Villa, [1995] R.J.Q. 73 (C.A.), at pp. 78‑79, per Gendreau J.A.)
In a study of the concept of economic public order in Quebec law, Professor Vincent Karim expressed the same view:
[translation] We would recall that in some cases the courts must determine the validity of the agreement or the contractual clause where there is no statutory provision dealing with such clauses or agreements. The concept of public order is not limited to the legislative concept; it may also consist of judicial decisions since, even where there is a legislative void, the courts have “the duty to give it sanction and mould it, having regard to the fundamental values of the society at a particular point in its development”.
(V. Karim, “L’ordre public en droit économique: contrats, concurrence, consommation” (1999), 40 C. de D. 403, at p. 409; B. Lefebvre, “Quelques considérations sur la notion d’ordre public à la lumière du Code civil du Québec”, in Développements récents en droit civil (1994), 149)
44 The Quebec courts have often moulded the principles of public order despite the legislature’s silence. For example, even when the C.C.L.C. did not contain any provisions in that regard, this Court made non‑competition clauses subject to strict conditions of validity based on public order (Cameron v. Canadian Factors Corp., [1971] S.C.R. 148).
45 In insurance cases, the Quebec courts have expressly recognized the principle of public order holding that no one may profit from his or her own crime (see Bélair v. Lasalle, [1970] C.A. 275, and Foncière Compagnie d’Assurance de France v. Perras, [1942] Que. K.B. 231, aff’d [1943] S.C.R. 165). However, it must be noted that those cases were decided prior to the enactment of the insurance law provisions in the C.C.L.C. The question that must therefore be asked is whether the 1976 insurance law reform eliminated this principle of public order.
46 It must be pointed out that jurisdiction in respect of public order is composed of two aspects (Karim, supra, p. 409). First, unless expressly provided by the legislature, the courts have the authority to determine whether certain statutory provisions are matters of public order. Second, the courts may raise any unwritten rule to the rank of a principle of public order where that rule is consistent with the fundamental values of the society at a particular point in its development.
47 As the respondent pointed out, art. 2500 C.C.L.C. does indeed expressly provide that the articles under the title “Of Insurance” that are listed there are matters of public order. However, the enactment of art. 2500 C.C.L.C. did not wipe out the principle that “no one may profit from his or her own crime” in Quebec insurance law, or eliminate the role of the courts in defining and identifying the rules of public order.
48 The respondent also cited art. 2481 C.C.L.C. as authority for ignoring the public order exception. In her submission, the legislature would not have acknowledged that indictable offences may be excluded if the public order rule that “no one may profit from his or her own crime” already did this. Article 2481 C.C.L.C. provides:
2481. Every general clause releasing the insurer if any act or regulation is violated is without effect, unless such violation constitutes an indictable offence.
49 In the respondent’s submission, this provision implicitly imposes an obligation on an insurer that wants to be released from its obligations in cases where an indictable offence has been committed to include a clause to that effect. Otherwise, the insurance policy covers the occurrence of an event that is the object of the risk insured, even if it occurs in the commission of an indictable offence. This interpretation is correct, especially since the second paragraph of art. 2502 provides that exclusions must be clearly indicated in the insurance contract:
2502. . . .
The insurer cannot invoke exclusions or clauses of reduction of coverage except those clearly indicated under an appropriate title, such as the following: “Exclusions and Reduction of Coverage”.
50 I cannot accept the respondent’s argument that the existence of the public order exception means that art. 2481 C.C.L.C. serves no purpose. On the contrary, as noted earlier, it leaves the insurer free to stipulate that the indictable offences and the consequences of those offences are excluded with respect to everyone, which was not done in this case.
51 The principle of public order that “no one may profit from his or her own crime” therefore exists in Quebec insurance law. First, the Quebec courts applied this principle before the 1976 insurance law reform. Second, there is nothing in the new provisions of 1976 to suggest that the legislature intended to preclude it. We must now consider the real meaning of this principle.
E. Meaning of the Public Order Exception
52 Notwithstanding the existence of the exception, it is not as absolute as was suggested by the appellant. In common law, this can be seen in Major J.’s reasons in Oldfield, supra, and I refer to his analysis on the point. The common law, as it has developed, does not demand that approach, nor does the civil law require it.
53 The public order rule is intended to prevent the insured or the person entitled to receive the insurance indemnity from profiting from his or her own crime. Insurance law does not, however, preclude the protection of innocent third persons or beneficiaries from the consequences of criminal activity. Many forms of insurance, such as fire, vandalism, fraud or theft insurance, cover risks of that nature. In addition, the trend in insurance law is toward limiting the effect of causes of nullity or forfeiture as against innocent third parties who have personal interests under the insurance contract. In this case, Ms. Goulet was the person who had the economic interest in the insurance policy before her husband’s death. Her husband was still the policyholder whose life was insured, but the right to claim the insurance indemnity was Ms. Goulet’s, by virtue of being designated as beneficiary.
54 The appellant argued that art. 2550 C.C.L.C. allows it to set up the public order rule that “no one may profit from his or her own crime”, which it could have asserted against the insured, against the innocent beneficiary of the insurance contract. According to the legal literature, art. 2550 C.C.L.C. constitutes an exception to the principle of the privity of contracts. It allows the insurer to set up against the beneficiary all of the causes of nullity or forfeiture that are based on the existence of the contract. For example, an insurer may set up against the beneficiary (even an innocent beneficiary) a false statement of the risks, non‑payment of premiums and cancellation of the contract. However, the insurer may not set up against the beneficiary causes of nullity or forfeiture that are purely personal to the insured. On this point, the comments made by M. Picard and A. Besson, with respect to a provision in the French insurance code that is similar to art. 2550 C.C.L.C., are relevant:
[translation] While the beneficiary has a personal and direct right against the insurer, the beneficiary nonetheless derives that right from the contract entered into by the subscriber and the insurer. The existence and scope of the beneficiary’s claim are determined by the contract. The beneficiary can have no rights other than those that result from the policy, in accordance with the law of 1930. The beneficiary can act against the insurer only in reliance on that policy. Therefore, all the limitations, restrictions or exceptions resulting from the insurance contract that could normally be set up against the policyholder may also be set up against the beneficiary. Undoubtedly, the insurer cannot set up exceptions against the beneficiary that are strictly personal to the subscriber and unrelated to the contract (for example, set‑off resulting from a claim against the subscriber for a matter unrelated to the contract). In contrast, all of the defences that derive from the policy itself on which the beneficiary relies may be set up against the beneficiary by the insurer. [Emphasis added.]
(M. Picard and A. Besson, Les assurances terrestres en droit français (4th ed. 1975), vol. 1, at p. 434)
55 Because the public order rule that “no one may profit from his or her own crime” does not affect the validity of the formation of the contract and is not based on the terms of the insurance contract, art. 2550 C.C.L.C. cannot be used to deprive the innocent beneficiary of his or her claim where the insured died when committing an indictable offence. That conclusion is supported by Stats v. Mutual of Omaha Insurance Co. (1976), 14 O.R. (2d) 233, at pp. 244-45, in which the Ontario Court of Appeal recognized that a section similar in wording to s. 195 in the Ontario Insurance Act (the equivalent of art. 2550 C.C.L.C.) did not allow the insurer to set up the public policy rule that “no one may profit from his or her own crime” due to the very nature of that cause of forfeiture:
Although the question was not raised in argument before us, I have considered whether the concluding words of s. 263(3) of the Insurance Act might deprive the beneficiary of her right to recover. They provide that, in a suit by a beneficiary under an accident policy, “the insurer may set up any defence that it could have set up against the insured or his personal representative”. I am of the opinion that this proviso does not operate to deprive the beneficiary of her remedy. This section does not force the beneficiary to stand in the shoes of the insured or of her estate . . . . She is not the alter ego of the insured and the preservation of the insured’s rights of defence cannot be taken to extend the public policy rule to the beneficiary in circumstances where it does not apply to her.
. . .
The Legislature, it seems to me in view of this statutory history, when enacting the concluding words of what is now s. 263(3) intended to avoid the confusion which had earlier arisen and to ensure that the insurer would enjoy the protection of conditions contained in the insurance contract notwithstanding lack of privity with the beneficiary.
However, these concluding words should not be stretched to encompass aspects beyond this their clearly evident purpose. They are intended to preserve defences which might be prejudiced if the beneficiary were not bound by the policy conditions; they cannot be taken to extend the scope of defences which have no connection with the policy conditions and to which the beneficiary would not be subject even if she were bound by the policy conditions. The rule of public policy is applied by the Courts quite apart from the requirements laid down as conditions in the insurance contract and the two should not be confused. Therefore, where the beneficiary, as in this case, is not otherwise barred by the public policy rule, the concluding words of s. 263(3) would not extend that rule to her. [Emphasis in original.]
56 Thus, to prevent Ms. Goulet from claiming the indemnity, the insurance contract should have contained a clause specifically providing that the insurer was not required to pay the indemnity if the insured died in the commission of an indictable offence. This clause of the contract could have been set up against the innocent beneficiary under art. 2550 C.C.L.C.
57 A public order rule such as the one the appellant has suggested be applied would not be of any value to society. It aims at the behaviour of the insured, and would punish an innocent beneficiary who is in the position of a third party in relation to the insured. The public order exception cannot be set up against the respondent, who is entitled to the proceeds of the life insurance policy taken out by her husband, as held by the Superior Court and the Quebec Court of Appeal.
V. Conclusion
58 For these reasons, the appeal must be dismissed with costs.
Appeal dismissed with costs.
Solicitors for the appellant: Pépin, Létourneau, Montréal.
Solicitors for the respondent: Petit, Blaquière & Dagenais, Saint-Laurent.