There are a number of situations which might involve the use of a nominee, such as concealing the identity of a building’s true owner. However, the use of a nominee for this purpose is not without certain risks, especially regarding matters of home insurance.
The recent decision rendered by the Superior Court in Gagnon v. Intact Compagnie d’assurance duly reflects the state of the law when it comes to the use of a nominee in such circumstances.
In this case, the plaintiffs, Ms. Gagnon and her daughter, Ms. Patry, sued Intact Compagnie d’assurance (the “Insurer”) for denying all compensation on grounds that Ms. Gagnon’s insurance policy (the “Policy”) was null and void.
The loss was due to a fire in a building, which had been identified in the Policy as belonging to Ms. Gagnon (the “Building”).
However, the Insurer’s investigation revealed that Ms. Gagnon was not the true owner of the Building, which actually belonged to Ms. Patry.
Because Ms. Patry was bankrupt and not eligible for a mortgage loan due to health problems, her mother agreed to help her by acting as a nominee on the deed of purchase. Accordingly, Ms. Gagnon acquired the Building under the terms of a notarial deed, and the same day, a counter letter was signed between Ms. Gagnon and Ms. Patry (the “Counter Letter”), granting ownership of the property to the latter party.
When the Policy was taken out, Ms. Patry did not reveal the existence of the Counter Letter and even indicated to the Insurer that she was taking care of her mother’s insurance file and acting on her behalf to insure her Building.
Ms. Patry also failed to disclose the existence of a second hypothecary lender on the Building and the fact that the Building had not been insured for over a year.
The Insurer believes that if it had been aware of this information, it would have refused to issue the Policy due to standards regarding the risks to be denied and those regarding nominees.
The Court concluded that the nominee situation was unequivocal. Although the title deed was in Ms. Gagnon’s name, Ms. Patry was in fact the sole owner of the Building.
Because this situation had not been disclosed to the Insurer, the Policy was rendered null and void. In effect, “[…] the declarations made by any person seeking insurance must be given in the highest level of good faith and everything must be disclosed, under penalty that the contract that had been agreed upon be rendered null and void.”  This standard also applies to the use of a nominee, be it at the time of the acceptance of the risk or after a claim.
Furthermore, because Ms. Gagnon was only a nominee, she had no insurable interest in the Building and could not suffer any direct or immediate harm as a result of the loss of a property that did not belong to her.
- Consequently, the Court found that Ms. Gagnon had no recourse against the Insurer, which had the right to cancel the Policy and deny Ms. Gagnon’s and Ms. Patry’s claims for compensation.
Under Article 1451 of the Civil Code of Québec, a counter letter consists in a secret contract where the parties agree to express their true intent, which constitutes a simulation.
A counter letter that aims to conceal the true identity of a building’s owner can be legal as long as the parties do not intend to use it for fraudulent purposes or contrary to public order. By definition, the apparent owner therefore acts as a nominee.
When purchasing insurance for such a building, the existence of a secret contract involving the role of a nominee must be disclosed to the insurer, since that is liable to influence its understanding and acceptance of the risk involved.
Otherwise, the policy could be declared null and void. The insured will then forfeit their right to be compensated for damages caused by the loss and be required to reimburse the insurer for the hypothecary loan it assumed with a financial institution, if applicable.