Maison Jean-Yves Lemay Assurances Inc. v. Bar et spectacles Jules et Jim Inc. 2016 QCCA 1494

The Court of Appeal was recently asked to rule on the obligations and responsibilities of brokers and appraisers in the context of a damage insurance policy renewal and following, among other faults, a mistake in the valuation of the insured building.

The focal point involves determining whether the broker can also be found liable for damages suffered by the insured due to a mistake in the said valuation.

Background

The Broker who was newly responsible for the file got in touch with the representatives of Bar et spectacles Jules et Jim inc., (the “Insured”) to renew the damage insurance policy which was coming to term June 1, 2010. Discussions with the Insured led the Broker to recommend an appraisal of the building. The Insured then called Gérard Légaré (the “Appraiser”) through the Broker.

So it was not until July 12, 2010 that the Appraiser submitted his report to the Insured, where he recommended raising the coverage from $424,000 to $565,000. At the request of the Insured, the report was also submitted to the Broker sometime between July 12 and 16, although the Broker did not read it until July 20. However, he was about to leave the office for his summer vacation, and although he asked a colleague to transmit the report to the insurer in order to increase the Insured’s coverage, nothing was done.

Unfortunately, on July 23, 2010, a fire ravaged the Insured’s building, and the Insured was indemnified for the maximum amount of coverage, that is to say, $424,000. This amount proved substantially insufficient, as the total costs of demolition and reconstruction added up to more than a million dollars, which had not been valued by the Appraiser. These costs were acknowledged by the parties.

The First Instance Decision

After a detailed analysis of the duties of the Broker and of the Appraiser and their respective faults, the trial judge concluded that only the Broker was liable for the damages suffered by the Insured. According to the judge, there was a break in the causal link of the fault committed by the Appraiser.

The Broker appealed this decision.

The Court of Appeal

Although one of the judges would have confirmed the position of the trial judge, the majority of the judges allowed the appeal, being of the opinion that the Broker’s fault did not override the fault of the Appraiser, meaning that there was no novus actus interveniens to trigger a break in the causal link.

Moreover, the majority considered that the faults of the Broker and of the Appraiser are separate and qualify for individual damages.

The Faults of the Professionals

The Court of Appeal did not revise the faults determined by the trial judge.

It was determined that the Broker committed the following faults:

• Delay in beginning the steps required to renew the policy;
• Failure to inform about demolition fees;
• Delay in hiring an appraiser following the Insured’s request;
• Failure to follow up on the valuation process;
• Failure to handle the Appraiser’s report with diligence.

The Appraiser admitted the following faults:

• Failure to consider that part of the building was for commercial use in his valuation;
• Failure to mention demolition fees;
• Failure to research the standards applicable in the event of building reconstruction.

Because of these faults he did not make an accurate valuation, which would have been for $714,845 in addition to demolition costs in the amount of $84,020.

The Causal Link

The opinions are divergent in terms of the application of the causal link.

In fact, the trial judge considered that the Broker’s fault in failing to transmit the valuation report to the insurer triggered novus actus interveniens, which broke the causal link between the fault committed by the Appraiser in terms of his valuation error, and the damages suffered by the Insured. Consequently, the Court found that all the damages suffered by the Insured, i.e., up to the amount that should have been insured, had it not been for the Appraiser’s mistake, should be borne by the Broker.

However, the valuation was outside the Broker’s area of expertise and the Court of Appeal considered that he could not be held liable for the damages arising from the inaccurate valuation.

Accordingly, the majority of the Court of Appeal re-established equity by mentioning that the Broker’s main mistake was not transmitting the report in a diligent manner, but even if he had, he would not have been in a position to notice the valuation error. Consequently, the Court was of the opinion that the Broker must only bear the damages arising from the difference between the amount of the valuation ($525,000) and the insured amount ($424,000), i.e., $141,000.

That being said, as far as demolition costs are concerned, even if the Appraiser should have considered them in his report, that did not relieve the Broker of his duty to provide counsel in this regard, and he should have advised his client to add them. The trial judge considered that a prudent and diligent broker would have recommended adding 8% to the coverage amount, or $45,200 in this case, which the Court of Appeal also maintained.

As far as the Appraiser is concerned, the Court of Appeal concluded that he was the only party responsible for the incorrect valuation of the building, which was not carried out in accordance with professional standards. As a result, he was liable for the difference between the valuation amount that should have been given, including demolition costs ($798,865) and what he appraised ($565,000), namely $233,865. From that amount, the Court deducted the amount paid by the Broker for the demolition costs ($45,200) leaving a remaining balance of $188,665.

Conclusion

The Court of Appeal’s decision is a relief for brokers who were saddled by an extremely broad obligation to inform and counsel as a result of the first instance decision.

The Court of Appeal therefore re-established the principles of civil liability under Quebec law regarding the fact that a person is only liable for the damages suffered by another if there is a direct causal link between the fault and the damages.

The Court of Appeal also reaffirmed the roles and obligations of brokers and appraisers by stating that the broker is not the guarantor of the value of properties as determined by the client or the appraiser.