MARch | ApRIL 2010 The Proportional Rule
TOTAL OR PARTIAL LOSS? QUITE THE QUESTION!
A comprehensive, context-based approach rather than a simple mathematical formula
Me Nadine Martin, Legal Counsel for Institutional Affairs, responsible for Practice Compliance | ChAD
Claims adjusters are often called upon to The insureds took the case to the Superior Furthermore, Justice Rochon mentioned
determine if a loss is partial or total. This Court of Quebec. Based on the adjuster’s that the mathematical formula used is
issue is all the more important in a case findings and the testimony of the building much too restrictive and likely to prevent
of under-insurance since, due to the use assessor, the judge came to the conclusion the insured in most, if not all cases, from
of the proportional rule (or the co-insurance that the loss should have been considered collecting the full amount of the insurance.
clause), it has a decisive impact on the total and the insurer was therefore sentenced A Comprehensive,
compensation that will be paid to the insured to pay the full amount of the insurance. Context-based Approach
as provided for under section 2493 of the The SSQ appealed the ruling before the The judge suggested an approach that he
Civil Code of Quebec. Quebec Court of Appeal, claiming that described as comprehensive and context-
the mathematical formula that insurers based, in other words, the approach any
But how does one determine whether
normally use precludes a total loss if the reasonable person would use when
the loss is partial or total?
cost of repairs is equal to or over the cost asking himself whether he should repair
Rejection of the or rebuild seriously damaged property.
Mathematical Formula Used of rebuilding.
In keeping with this approach, a number
In a recent ruling, the Quebec Court Using a mathematical calculation, the SSQ of different criteria must be taken into
of Appeal suggested new criterion and introduced in evidence that the costs of account.
rejected the rigid application of the repairing were equivalent to 90% of the
mathematical formula that had hitherto cost of rebuilding. The SSQ therefore Though not an exhaustive list, Justice
been used.1 claimed that it was correct in concluding Rochon included the following criteria:
that a partial loss had occurred, thus also ■ the various costs, excluding certain
This ruling resulted from a dispute between
justifying the use of the proportional rule. components unlikely or not at all likely
the SSQ, Société d’Assurances générales
to be affected by the incident, for
Inc. and Mr. Cardin and Ms. Doyon. In the
example, the foundations;
summer of 2004, a fire caused by thunder
seriously damaged the couple’s home.
The claim was covered under an owner- “ A hugeadjusters, who
challenge for ■ the reasonableness of the repairs
to be done;
the measures that must be taken to pro-
occupant multi-risk insurance policy
will have to deal with
issued by the SSQ. Since the building’s tect or reuse components that
$150,000 coverage was lower than the the difficulty of estab- can be repaired;
actual value of the property, the propor- lishing the relevant ■ the assurance the owner will feel,
tional rule (or the co-insurance clause), criteria for assessing knowing that the repairs will result in a
let’s talk case law
as provided for under section 2493 of
the Civil Code of Quebec, was applicable.
the situation as a whole.
” property whose value and usefulness
are similar or comparable to that which
he enjoyed before the incident;
As you will recall, under this section, “The
insurer may not refuse to cover a risk for ■ the timetable and the conditions required
Trial Court Ruling Confirmed
the sole reason that the amount of insurance to carry out the work contemplated.
The Court of Appeal confirmed the ruling
is less than the value of the insured property. of the trial court judge and maintained that A Major Impact
In such a case, he is released by paying on Professional Practice
the loss should have been considered
the amount of the insurance in the event This ruling should have a major impact on
total. The Court challenged the mathemati-
of total loss or a proportional indemnity the professional practice of claims adjusters,
cal formula that the insurer had used and,
in the event of partial loss.” as well as revisers, who are called upon
in particular, the fact that it had included
to assess losses in the event of a claim.
As a result, if the loss is total, the insurer recoverable components, such as the cost
Moreover, it poses a huge challenge.
must pay the full amount of the insurance, of the foundations, when calculating the
in other words $150,000, but if the loss is cost of rebuilding. Adjusters and revisers will have to review
partial, the insureds will have to assume how they describe a loss and they will no
In the Court’s opinion, the insurer’s decision
a portion of the costs. longer be able to simply rely on a rigid
should have been based on the criteria as
mathematical calculation. They will have
Given the extent of the losses caused by a whole rather than on a single mathe-
to deal with the difficulty of establishing
the fire and water damage, the claims matical formula. For example, it would
relevant criteria for assessing the situation
adjuster recommended to the SSQ that it have been appropriate to take into account
as a whole.
pay the full insurance amount. However, the fact that the building’s structure was
the insurer decided to ignore this recom- so severely damaged that it would have
mendation and instead made a proportional been difficult—or even dangerous for the 1
SSQ, Société d’assurances générales Inc. v. Cardin,
2009 QCCA 658 (CanLII).
payment of $99,120. workmen—to protect it.
This article provides general commentary on recent
developments in the legal world. It does not constitute
a legal opinion. Readers should not act solely upon the
basis of information contained herein.