McGILL LAW JOURNAL
[Vol. 2
A RE-EXAMINATION OF THE TEST OF MATERIALITY
IN QUEBEC INSURANCE LAW
In the absence of fraud, a misrepresentation or concealment on the part
of an insured will be a cause of nullity in favour of the insurer only under
certain conditions. The insurers are bound to establish the non-disclosure, the
fact that the applicant had knowledge of the true situation, and the fact that
they (the insurers) did not have this knowledge. In addition, they must show
that the evasions were material to the risk. The great problem confronting the
courts in the majority of insurance cases today is the determination of what
constitutes material facts.
The first of the statutory conditions in the Quebec Insurance Act (applic-
able to policies of fire insurance) imposes a sanction of nullity where the
insured: “misrepresents or omits to communicate any circumstance which is
material to be made known to the company, in order to enable it to judge
of the risk it undertakes.”1
Beyond thus noting that materiality is a subjective concept, to be assessed
from the insurer’s point of view, no attempt at definition is made by the
statute.
In the Quebec Civil Code, the general article relating to representation
that is, those which must be disclosed on
declares that the material facts –
are those which show, “the nature and extent of the risk,
pain of nullity –
and which may prevent the undertaking of it, or affect the rate of premium.”12
Article 2487 of the Code supplies the teeth to the foregoing provision,
providing a sanction of nullity for misrepresentation or concealment of facts,
“of a nature to diminish the appreciation of the risk or change the object of
it.” And, in Article 2489, “material concealment” is assimilated to “substantial
concealment”.
Until 1953, these articles were interpreted as restating the test of mater-
iality as laid down in the English Common Law, namely: “A representation
is material which would influence the judgement of a prudent insurer in
fixing the premium or determining whether he will take the risk.”3
The question was examined in our Supreme Court as recently as 1941.
As the case arose in Quebec, the court had to decide whether the provisions
of Article 2487 had been infringed. Kerwin J. states the law as follows:
. ..were the inaccuracies of a nature to diminish the appreciation of the risk or
change the object of it? The criterion, I apprehend, that is to be followed is the same
as that set forth by the Privy Council, in Mutual Life Insurance Co. vs. Ontario
Metal Products Co.,4 i.e. whether if the matters concealed or misrepresented had
been truly disclosed they would, on a fair consideration of the evidence have in-
1(1941) R.S.Q., cap. 299, sec. 240(1).
2Article 2485.
SMarine Insurance Act (1906) 6 Edw. 7, cap. 41, sec. 20(2).
4[1925] A.C. 344.
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CASE AND COMMENT
fluenced a reasonable insurer to decline the risk or to have stipulated for a higher
premium. 5
In 1953, in Alliance Insurance Co. of Philadelphia et al. v. Laurentian Col-
onies and Hotels Limited,6 the Quebec Court of Appeal changed direction as
regards the interpretation of Articles 2485-2489, and abandoned the subjective
test of materiality. Briefly, the facts in the case were as follows:
A company known as the Laurentian Colonies and ,Hotels Limited had
been organized by one Audet with a view to the erection of a resort hotel at
Ste. Marguerite Station in the Laurentian mountains. Pending the com-
pletion of the construction, a total of $359,125. of insurance was acquired
through the agency of a firm of insurance brokers. Less than a month later,
the property was almost completely destroyed by fire. Thirty of the thirty-one
companies who were on the risk disputed their liability, on five general
grounds.
Firstly, it was established that Audet had been convicted of the criminal
offense of living off the fruits of prostitution, and had duly served a penal
sentence of five years. Secondly, other insurers had refused to cover the risk
on “moral grounds”, and some other insurance that was held had been
cancelled. Thirdly, the property was overburdened with heavy mortgages.
Fourthly, the financial status of the company was precarious. And, these four
situations were not disclosed to the insurers. The fifth ground was the fact
that the buildings were not sprinklered, although it had been represented
that an adequate sprinkler system would be installed.
The trial judge found, as a matter of fact, that there had been a clear
intention to equip the hotel with a sprinkler system, as an engineer had been
consulted and estimates had been submitted. Thus the representation had
been substantially complied with. He found that the non-disclosures were not
material under the circumstances of the case; and the test he applied was the
subjective one of the probable effect of the truth on the minds of the under-
writers.
In the Court of Queen’s Bench, the principal decision was delivered by
Mr. Justice Stuart McDougall, and was concurred in by Barclay, Gagn6, and
Hyde JJ. On the question of materiality, the learned judge reasoned as
follows:
There is a vast difference between material facts which relate to the risk and of
which the insurer is entitled to be informed, and information which he desires in
order to decide whether or not to cover the risk and issue a policy. This reasoning
leads to a consideration of certain differences between our law and the common law.
The Marine Insurance Act, which defines materiality, is accepted as governing in all
forms of insurance under the common law system.
A comparison of [the language of this Act] with the language of Article 2485 shows
that the scope of materiality under the common law is wider than under our law. A
‘fact which shows the nature and extent of the risk, and which may prevent the
undertaking of it, or affect the rate of premium’ covers a much narrower field than
the judgement of a- prudent insurer in
a ‘circumstance which would influence
5Gauvremont v. Prudential Insurance Co. of America [1941] S.C.R. 139, at p. 160.
6[1953] Q.B. 241.
McGILL LAW JOURNAL
[Vol. 2
[fixing the premium or] determining whether he will take the risk’. This view of the
difference in meaning is reinforced by the language of Article 2487, under which the
only misrepresentation or concealment which may be a cause of nullity is of ‘facts
of a nature to diminish the appreciation of the risk or change the object of it’. Under
the common law the field of what are known as moral hazards would therefore be
much larger than under our law.7
This analysis of Article 2485 by McDougall J. is perfect from a gram-
matical point of view. According to the plain meaning of the English words,
the insurer wishing to establish materiality must prove two things. He must
prove in the first place that the fact “shows the nature and extent of the
risk”. Secondly, he must prove either that it might have prevented the under-
taking, or that it might have affected the rate of premium. The first proof
is objective and narrow; the second proof is subjective and wide. Since the
insurer is compelled to make both proofs, the net result is that, in our law,
materiality is a narrower concept than in the English law. And, in this view,
the test of materiality is –
at least partially –
an objective one.
Leaving aside the moot question as to whether this view ought to be the
law, it is the purpose of this article to examine the provisions of the Civil
Code, in order to determine whether this actually is the law of Quebec. For,
it will be noted that the French version of Article 2485 provides that: “L’as-
sur6 est tenu de declarer pleinement et franchement tout fait qui peut indiquer
la nature et l’6tendue du risque, emp~cher de l’assumdr, ou influer sur le
taux de la prime.”
In the French version, the duty of disclosure is phrased in the alternative,
with the result that a material fact is one which does any of three things:
it shows the nature and extent of the risk; or it prevents the undertaking;
or it affects the rate of premium. In this case, our law is in harmony with the
Common Law instead of being narrower, and the prevailing test of materiality
is applicable in Quebec as well.
Which version is to prevail? There exists, within the Civil Code itself, an
article whose purpose is the resolution of just such a difficulty, and which
provides that: “If in any article of this Code founded on the laws existing at
the time of the promulgation, there be a difference between the English and
French texts, that version shall prevail which is most consistent with the
provisions of the existing laws on which the article is founded; and if there
be any such difference in an article changing the existing laws, that version
shall prevail which is most consistent with the intention of the article, and
the ordinary rules of legal interpretation shall apply in determining such
intention.”
Our Codifiers note that Articles 2485-2489 are of general application, and
contain rules common to the law of insurance in all countries.9 Moreover,
7Ibid., at pp. 253-255.
gArticle 2615. And cf. City of Montreal v. Watt and Scott [1922] 2 A.C. 555, for
interpretation of what is meant by “a difference”.
9Report of the Commissioners to Codify the Laws of Lower Canada in Civil Matters,
Seventh Report, p. 242.
No. 2]
CASE AND COMMENT
there is nothing to indicate that it was their intention to change the law on
this subject. It is evident, therefore, that Aricle 2485 is founded “on the
laws existing at the time of the promulgation”. It follows that the version
which shall prevail is that one “which is most consistent with the provisions
of the existing laws on which the article is founded”.
To determine the law upon which Article 2485 is founded, we return to the
Codifiers’ Reports to examine the sources referred to by them under this
article. Beneath the article which later became Article 2485, a reference is
made to the French author, Pardessus, and to the references following the
next two articles. In all, six references are made to ancient and modern French
sources, three to American sources, and one to an English’ source.’ 0 In addi-
tion, the Codifiers referred to a pre-codification decision of our courts.
Pardessus notes that: “Le contrat doit 6noncer, avec exactitude, en quoi
consiste la chose assur~e, et tout ce qu’il importe A l’assureur de bien con-
naitre, pour appr~cier l’itendue des risques auxquels il s’expose.””1 That is,
a material fact, according to Pardessus, is one which it is of consequence
for the insurer to know in order for him to estimate the extent of the risks
he is assuming.
The Codifiers refer to Pothier, but, beyond noting that “la prime est
l’estimation des risques”,12 the learned author makes no declaration on the
subject of materiality. The other French sources referred to are Alauzet,’3
Dalloz, 4 Boudousqui6, 15 and Article 348 of the French Code de Commerce.
These sources say substantially the same thing as does Pardessus. Bou-
dousqui6, for example, states as follows: “Ainsi, tout ce qui peut servir a
l’appr6ciation des risques doit Etre mis, par l’assur6, i la connaissance de
l’assureur; lui laisser ignorer une seule des circonstances qui peuvent influer
sur son opinion, et par suite sur son volont6, c’est l’autoriser i dire qu’on a
mis i sa charge des chances qu’il n’aurait pas voulu garantir, ou qu’il n’aurait
garanties qu'” des conditions diff6rentes s’il les avait connues.”‘ 6
The English source referred to is Arnould, a noted authority on English
insurance law. His answer as to what constitutes material facts is that: “every
representation is to be deemed material which there is just reason to believe
determined the underwriter to insure, or influenced his estimate of the premium.
OA further reference is made to Bell, Commentaries on the Laws of Scotland. This
source, however, makes no mention of materiality, and must have been referred to for
other purposes.
11J. M. Pardesus, Ccurs de Droit Commercial, 5th. ed., Vol. 2, No. 593.
2M. Pothier, Traiti des Contrats d’Assurances, 1781, ch. 3, sec. 3.
1
131. Alauzet, Traiti Giniral des Assurrances, 1844, esp. Vol. 1, No. 202, and Vol. 2,
at p. 414.
14Dalloz, Dictionnaire Pratique: esp. Assurances Terrestres, No. 85.
15P. A. Boudousqui6, Traiti de l’Assurance Contre ‘Incendie, 1829.
W”Ibid., at p. 140.
McGILL LAW JOURNAL
[Vol. 2
The test of materiality is the probable influence of the statement made, on
the mind of the underwriter.’ 7
Marshall, an American authority referred to, puts the matter as follows:
“A representation is said to be material, when it communicates any fact or
circumstance, the belief of which may be reasonably supposed to influence
the judgement of the underwriters, in undertaking the risk, or calculating
the premium.”‘ 8
The other two American sources referred to are Phillips, 19 and Kent.20 They
agree substantially with what was said by Marshall. Kent, for example, says
at one point, that the insured is obliged “to communicate every species of
intelligence which he possesses, which may affect the mind of the insurer
either as to the point whether he will insure at all, or as to the rate of
premium.” 21
The pre-codification case referred to is that of Casey v. Goldsinid et al.22
In it, the defense to an action on a policy of fire insurance was concealment of
material facts. The Superior Court dismissed the action, but the Court of
Queen’s Bench allowed the appeal on the ground that the concealment was
not fraudulent. The Court of Appeal did not deal with the question of mater-
iality at all, holding that proof of fraud was required to annul an insurance
contract for concealment. The presence of Article 2487 in the present Code
indicates the rejection of this view by the Codifiers.
The decision in first instance, which therefore is the one our Codifiers
adopted, contains the following statement: “By material facts, in this respect,
are meant all those which if communicated to the insurer, would induce him,
either to refuse the ihsurance altogether, or not to accept it unless at a higher
rate of premium. ’23
This survey of the sources which gave birth to Article 2485 indicates
clearly that, at the time of the codification, the laws of England, France, and
the United States were in harmony on the subject of materiality. In sub-
stance, all the sources referred to assessed materiality from the subjective
point of view of the insurer.
The writer must conclude therefore, with all due respect for the analysis
made by McDougall J., that the subjective test of materiality as laid down
in the English Marine Insurance Act is in harmony with the rules of the
Quebec Civil Code. The excursion into the sources referred to by our
Codifiers, necessitated by the difference between the English and French
1’7Joseph Arnould, A Treatise on the Law of Marine Insurance, 2nd. ed., Vol. 1, No.
194.
‘SSamuel Marshall, A Treatise on the Law of Insurance, 3rd. ed., No. 452.
19 Willard Phillips, A Treatise on the Law of Insurance, 4th. ed.; esp. Vol. 1, No. 88.
2Ojames Kent, Commentaries on American Laws, 1832.
2lbid., Vol. 3, No. 285.
22(1852), 2 L.C.R. 200, and (1854), 4 L.C.R. 107.
m3(1852), 2 L.C.R. 200, per Meredith J.
No. 2]
CASE AND COMMENT
153
texts of Article 2485, clearly establishes the French version of that article,
and the subjective test of materiality.
Finally, it will be noted that the learned judge reinforced his interpretation
by referring to Article 2487. With respect, the writer contends that it is pos-
sible to interpret this article so as to support the present analysis of Article
2485. The article referred to provides that concealment of a fact, “of a nature
to diminish the appreciation of the risk” is a cause of nullity. The writer
is a sub-
submits that the ordinary meaning of the word “appreciation”
jective one, referring in this instance to the estimation of the risk in the
mind of the insurer.24
STANLEY TAvIss*
2 4For support of this contention, see G. Wasserman, “Materiality of Facts Relating
to the Risk in Fire Insurance” (1954), 14 Revue du Barreau 397, at pp. 405-407.
*Third Year Student.
