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Beware of arbitration clauses in Quebec insurance policies. According to the Court of Appeal, they can preclude recourse to the courts
In a context where various methods of private dispute prevention and resolution are becoming increasingly popular, an analysis of mediation-arbitration clauses from an insurance law perspective merits special attention.
In this regard, the Quebec Court of Appeal recently considered the impact of a multi-step mediation-arbitration clause included in an insurance policy.
In 9369-1426 Québec Inc. (Restaurant Bâton Rouge) v. Allianz Global Risks US Insurance Company, 2021 QCCA 1594, the Appellant Bâton Rouge appealed from a Superior Court judgment that dismissed its application for authorization to institute a class action (art. 571 C.C.P.) and granted the Respondent’s application to refer the matter to arbitration.
The underlying dispute concerned insurance claims for business interruptions attributable to the COVID-19 pandemic. The insurer, Allianz Global Risks, requested that the matter be referred to arbitration pursuant to the mediation-arbitration clause in the insurance policy, which reads as follows:
“5. Dispute Resolution
In the event that the Insurer and the Insured(s) cannot agree concerning either the coverage or the quantum afforded by this Policy, it is agreed that the dispute shall be resolved in accordance with the dispute resolution process hereinafter described:
- Mediation with a Mediator mutually agreed by the parties to the dispute. If the parties fail to concur on the choice of the Mediator, a Court shall appoint a Mediator on a Motion by one of the parties.
- If settlement at Mediation is not possible, the dispute will be referred to Arbitration in accordance with the applicable Arbitration legislation/regulations in the jurisdiction in which the Policy is issued. The decision of the arbitrator will be binding on all parties to the dispute, with no right of appeal.
- Each party shall bear its own costs and expenses in connection with the dispute resolution process. The costs and expenses of Mediation and Arbitration shall be shall be shared equally by the parties to the dispute.
By agreement in writing, the Insurer and the Insured(s) may waive compliance with this section or any part thereof for purposes of a specified dispute.”
Baton Rouge argued that this dispute resolution clause was inconsistent with the forum selection clause contained in the “General Terms and Conditions” section of the policy, which reads as follows:
“2. Policy Jurisdiction
This policy shall be deemed to have been made under and shall be governed by the laws and decisions of the province or territory shown in the mailing address of the Named Insured, as it is shown in the “Policy Declarations”.
The Courts in the Court District in which the Named Insured is located shall have exclusive jurisdiction in case of a coverage dispute. “
In first instance, the Honourable Justice Gary D.D. Morrison agreed with the insurer and held that the dispute resolution clause in the policy gave exclusive jurisdiction to an arbitrator.
The Court of Appeal held that arbitration clauses, which must always be considered as legally distinct from the contracts in which they are embedded pursuant to article 2642 of the Civil Code of Quebec, must be given a broad and liberal interpretation. In this case, as the relevant terms of the insurance policy we deemed ambiguous, the ambiguity had to be resolved by resorting to the usual rules of contractual interpretation (art. 1425 et seq. of the Civil Code of Quebec).
Indeed, a reading of the relevant terms creates the impression that coverage disputes involving Quebec insureds fall within the ambit of both a forum selection clause and an arbitration clause, without the insurance policy specifying which clause ought to prevail.
However, the Court of Appeal was of the view that the ambiguity is easily resolved by analyzing the policy as a whole, which provides that the forum selection clause applies solely in common law provinces and territories, while the arbitration clause takes precedence in Quebec. This interpretation is in keeping with article 1428 C.C.Q., which provides that clauses must be interpreted so that they have some effect rather than no effect.
The Court of Appeal therefore held that the first instance judge did not err in finding that the dispute between the parties was covered by the dispute resolution clause in the insurance policy and that the matter should be decided by an arbitrator, and therefore that the Superior Court did not have jurisdiction.
This decision underscores the importance for insurers to review their insurance policies in light of dispute prevention and resolution clauses, and, depending on the circumstances, decide whether or not to include mandatory mediation-arbitration clauses. But, more importantly, if the insurance policy contains mandatory mediation-arbitration clauses, insurers should enforce them and file an application for referral to arbitration and/or mediation.
Consult the full English text of the judgment: https://www.canlii.org/en/qc/qcca/doc/2021/2021qcca1594/2021qcca1594.html?autocompleteStr=2021%20QCCA%201594&autocompletePos=1
