Canadian Indemnity Co. v. Canadian Johns-Manville Co.

Canadian Indemnity Co. v. Canadian Johns-Manville Co.
Collection
Supreme Court Judgments
Date
1990-09-13
Report
[1990] 2 SCR 549
Case number
21265
Judges
La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Gonthier, Charles Doherty; Cory, Peter deCarteret
On appeal from
Quebec
Subjects
Insurance
Notes
SCC Case Information: 21265
Decision Content
Canadian Indemnity Co. v. Canadian Johns‑Manville Co., [1990] 2 S.C.R. 549
Canadian Indemnity Company Appellant
v.
Canadian Johns‑Manville Company, Limited Respondent
indexed as: canadian indemnity co. v. canadian johns‑manville co.
File No.: 21265.
1989: December 7; 1990: September 13.
Present: La Forest, L'Heureux‑Dubé, Sopinka, Gonthier and Cory JJ.
on appeal from the court of appeal for quebec
Insurance ‑‑ Representation and concealment ‑‑ Public character and notoriety exception ‑‑ Insured failing to disclose material facts relating to health risks associated with asbestos ‑‑ Whether insurer presumed to know undisclosed facts by reason of their public character or notoriety ‑‑ Whether notoriety could be measured with reference to foreign material ‑‑ Constructive knowledge ‑‑ Insurer's duty to inquire ‑‑ Uberrimae fidei nature of insurance contract ‑‑ Confirmation of contract ‑‑ Civil Code of Lower Canada, arts. 2485, 2486, 2489.
In 1970, the appellant insurer issued to the respondent, a company involved in the mining and selling of asbestos and the manufacturing and selling of asbestos products, a comprehensive general liability policy providing insurance coverage against various risks, including products liability. The policy was renewed in 1973 and cancelled two years later. In 1979, the appellant brought an action in the Quebec Superior Court seeking to have the policy annulled. The appellant alleged that the respondent had failed to disclose material facts within its knowledge relating to health risks associated with the inhalation of asbestos fibres ‑‑ in particular, medical research papers (the "Selikoff reports"). In defence, the respondent admitted that it had the Selikoff reports in its possession prior to the issuance of the policy but stated nonetheless that it had fully and fairly represented every fact which showed the nature and extent of the risk. In the alternative, the respondent claimed that any material facts which the appellant alleges were misrepresented or concealed were actually facts known to it or which it was presumed to know as a result of their public character and notoriety. The respondent noted in this connection that the custom and usage of the asbestos industry were common knowledge, and that the appellant, if uninformed for whatever reason, was under a duty to inquire. The alleged hazards arising from the use of asbestos were said to be equally open to the knowledge of both appellant and respondent. Finally, the respondent stated that by intervening in 1975 on its behalf pursuant to the terms of the policy in a court proceeding in the United States, the appellant was barred from seeking avoidance of the policy at a later date. By assuming its responsibilities under the policy, the appellant had waived or renounced any alleged rights to avoid the policy and could now be met with a fin de non‑recevoir.
The Superior Court allowed appellant's action and declared the policy and its renewal null ab initio. The facts contained in the Selikoff reports were deemed to be material to the appreciation of the risk and could not be said to form part of what an insurer could be presumed to know by virtue of "public character and notoriety". In the view of the trial judge, that exception embraced only facts which are part of common or public knowledge. The judgment was set aside on appeal. The Court of Appeal examined a large pool of Canadian and American published materials and concluded that the insured was entitled to presume that the insurer had a basic professional knowledge of the dangers of exposure to asbestos fibres by virtue of the evident public character and notoriety of such dangers, and that consequently the insured had no duty to declare the facts contained in the Selikoff reports.
Held: The appeal should be dismissed.
(1) Public Character and Notoriety
The insured has an obligation to disclose all the facts that are material to the risk, but it is not obliged under art. 2486 C.C. to disclose facts known to the insurer or which from their "public character and notoriety" the latter is presumed to know. The concept of "public character" refers to the availability or accessibility of information, and the concept of "notoriety" must be determined with reference, not to the general public, but to the insurer. The standard, however, is not the insurer in a particular case but rather a reasonably competent underwriter insuring similar risks in the industry covered by the policy. It follows that under art. 2486 C.C. the insurer will be presumed to know only those facts which are publicly available and which would be notorious to the reasonably competent underwriter insuring similar risks in that industry. A reasonably competent underwriter will be expected to keep abreast of information regarding the particular industry it insures, and this may go beyond that which is notorious to the general public, but it will not be expected to know facts which are known only by those inside the industry, and which are only available through a process of detailed research or in‑depth investigation.
There was some question as to the type of facts which can be considered notorious for the purpose of art. 2486 C.C., particularly detailed or technical information. Article 2489 C.C. provides an indication as to how this question should be treated. This provision describes the precision with which an insured will be expected to represent a fact: the description must be substantially accurate. It is entirely appropriate to apply the same standard to the notoriety exception. The insured will be relieved of its duty to disclose where material facts are substantially as depicted by virtue of public character and notoriety, and accordingly, an insurer cannot fault the insured for failing to disclose all the detailed information in its possession where the picture open and well known to a reasonably competent insurer substantially represents the facts.
In this case, the information regarding the dangers associated with asbestos was material to the assessment of the risk and the disclosure made by the respondent ‑‑ the reference in its annual report to the Selikoff research ‑‑ was not alone sufficient to qualify as full and fair disclosure under art. 2485 C.C. A review of the evidence, however, indicates that a reasonably competent insurer in the asbestos industry in 1970 would have been aware of the type of risks alluded to in the Selikoff reports. It is clear from the relevant Canadian and American material that information about asbestos‑related health risks had spread well beyond the boundaries of industry knowledge and was by then in wide public circulation. Insurance underwriters may not have been aware of the precise statistical data contained in the Selikoff reports, but it is clear that a reasonably competent underwriter would certainly have been aware that serious asbestos‑related health risks had been reported. Accordingly, the respondent was not bound to disclose the Selikoff reports to the appellant because the latter was presumed to know the same or substantially the same information by virtue of its public character and notoriety. Foreign materials were relevant in considering such public character and notoriety, given the North American operations of the appellant and the world‑wide coverage of the policy.
(2) Insurer's Duty to Inquire
It may be that in normal circumstances, an insurer may not have to inquire or investigate beyond the preliminary gathering of basic information. As long as the material facts are available through the insured's representations or through public character and notoriety, the insurer is equipped to evaluate the nature and extent of the risk and to set the premium rate. If additional detail is desired, the insurer may wish to make further inquiries, but it is not required to do so, and likewise it cannot fault the insured for not providing such details in the first place. Where, however, as in this case, the insurer has never before insured a particular type of risk, the insured is nonetheless entitled to assume that it is dealing with a reasonably competent, and hence knowledgeable, insurer. If the insurer does not have the requisite level of knowledge prior to considering an insurance risk, it is not disqualified from assuming the risk, but it will be expected to acquire the requisite level of knowledge by means of inquiry or investigation. This duty to inquire does not flow from the principle of constructive knowledge; it is the logical consequence of the rule in art. 2486 C.C. that the insured need not disclose those facts which its insurer is presumed to know, that is, those facts which, by virtue of their public character and notoriety, would be known to the reasonably competent underwriter insuring similar risks in the industry.
(3) Uberrimae Fidei Nature of Insurance Contract
Both parties are required by law to treat the contract of insurance as an uberrimae fidei contract. The insured will disclose fully and fairly or risk having the contract annulled, and the prudent insurer will ensure that it acquires a good knowledge of the industry in which it insures or fail to do so at its peril. Though the trial judge made it clear that both parties acted in good faith, he also indicated clearly that the appellant and its staff showed negligence in issuing the policy and in fact seemed to accept the risk almost blindly. An insurer which is underwriting risks for the first time will have to find ways to bring its knowledge up to the minimum level expected of it. It cannot simply rely on the insured and later place the blame on that insured for the gaps in its knowledge of the risk. To do so would not be fraudulent, but it would certainly amount to bad faith.
(4) Confirmation of Contract
The appellant did not implicitly confirm the policy by taking up the respondent's defence in a law suit filed in the United States in 1975 because the conditions necessary for the confirmation of a contract which is voidable ‑‑ knowledge of the defect and intent to rectify it ‑‑ were not met. The trial judge found that the appellant did not have knowledge of the defect until the end of 1978. In light of the evidence adduced at trial, this finding was not manifestly in error.
Cases Cited
Referred to: Fidelity and Casualty Co. of New York v. General Structures Inc., [1977] 2 S.C.R. 1098; Angelillo v. Prévoyance, Cie d'assurances, [1983] C.A. 305; Q.N.S. Paper Co. v. Chartwell Shipping Ltd., [1989] 2 S.C.R. 683; Carter v. Boehm (1766), 3 Burr. 1905, 97 E.R. 1162; Alliance Insurance Co. of Philadelphia v. Laurentian Colonies and Hotels Ltd., [1953] Que. Q.B. 241; Green v. Merchants' Insurance Co., 27 Mass. (10 Pick.) 402 (1830); Moses v. Delaware Ins. Co., 17 Fed. Cas. 891 (1806) (No. 9,872); Alsop v. Commercial Ins. Co., 1 Fed. Cas. 564 (1833) (No. 262); De Longuemere v. N.Y. Fire Ins. Co., 10 Johns. 120 (1813); Casey v. Goldsmid (1852), 2 L.C.R. 200 (Sup. Ct.), rev'd (1854), 4 L.C.R. 107 (Q.B.); Century Insurance Co. of Canada v. Case Existological Laboratories Ltd., [1983] 2 S.C.R. 47; Norwich Union Fire Insurance Society Ltd. v. Gaudreau, [1953] Que. Q.B. 753; Racicot v. Bertrand, [1979] 1 S.C.R. 441; Cie J. A. Gosselin Ltée v. Péloquin, [1957] S.C.R. 15.
Statutes and Regulations Cited
Act respecting insurance, S.Q. 1974, c. 70, s. 2.
Act to amend the Workmen's Compensation Act, S.Q. 1943, c. 27, ss. 5, 6.
Act to protect workmen suffering from silicosis, S.Q. 1938, c. 89, s. 1.
Civil Code of Lower Canada, arts. 992, 1024, 2485 to 2489 (former), 2485 [ad. 1974*, c. 70, s. 2; am. 1979, c. 33, s. 44], 2500 [ad. 1974**, c. 70, s. 2; am. 1979, c. 33, s. 47], 2613 (former).
Workmen's Compensation Act, R.S.Q. 1964, c. 159.
Authors Cited
Alauzet, Isidore. Traité général des assurances, t. 2. Paris: Cosse, 1844.
Arnould, Joseph. A Treatise on the Law of Marine Insurance and Average, vol. I, 2nd ed. Boston: Little & Brown, 1850.
Association Henry Capitant. Vocabulaire juridique. Publié sous la direction de Gérard Cornu. Paris: P.U.F., 1987, "notoire", "notoriété".
Civil Code of Lower Canada: Sixth and Seventh Reports and Supplementary Report. Quebec: George E. Desbarats, 1865.
Duer, John. The Law and Practice of Marine Insurance, vol. II. New York: John S. Voorhies, 1846.
Émerigon, M. Balthazard‑Marie. Traité des assurances et des contrats à la grosse, t. II. Marseille: Jean Mossy, 1783.
Harding, Len. "Current Problems and Trends in Products & Liability" (1967), 34 Canadian Underwriter 24.
Kent, James. Commentaries on American Law, vol. III, 6th ed. New York: William Kent, 1848.
Marshall, Samuel. A Treatise on the Law of Insurance, vol. I, 3rd ed. London: Butterworth and Son, 1823.
Phillips, Willard. Treatise on the Law of Insurance. Boston: Wells & Lilly, 1823.
Phillips, Willard. Treatise on the Law of Insurance, vol. II. Boston: Hilliard, Gray and Co., 1834.
APPEAL from a judgment of the Quebec Court of Appeal, [1988] R.J.Q. 2651, 18 Q.A.C. 99, 54 D.L.R. (4th) 468, [1989] I.L.R. {PP} 1‑2414, reversing a judgment of the Superior Court, [1985] C.S. 719. Appeal dismissed.
J. Vincent O'Donnell, Q.C., Alain Dagenais and Odette Jobin‑Laberge, for the appellant.
Graham Nesbitt and Thomas R. M. Davis, for the respondent.
//Gonthier J.//
The judgment of the Court was delivered by
GONTHIER J. -- At issue in the present case is the extent of the insured's duty to disclose as well as the scope of the exception relating to facts which from their public character and notoriety the insurer is presumed to know. We are guided by the general provisions of the Civil Code on insurance and, in particular, by the articles dealing with representation and concealment (arts. 2485 to 2489 C.C.) as they appeared before the 1974 alterations to the Code.
I ‑ The Facts
Procedural History and the Insurance Policy
This matter comes to this Court from the Quebec Court of Appeal which overturned the decision of Boudreault J. who had ruled in favour of the appellant, the Canadian Indemnity Company (the "Insurer").
In the Superior Court of Quebec, the appellant took proceedings which sought a declaration of nullity ab initio of both its Policy number 4L 46787 (the "Policy") issued on June 30, 1970 and the renewal of that same Policy, dated June 30, 1973 and valid for a further three years. The appellant also requested compensation between the sums which it had disbursed and the premiums which it had received.
The impugned Policy is referred to as a Comprehensive General Liability Policy. It affords coverage to Canadian Johns‑Manville Company (the "Insured") whose operations are described in the Policy as "consisting principally of, but not limited to, mining, manufacturing and sale of asbestos". The Policy provides coverage for the following risks, as labelled in the Policy: "Bodily Injury or Illness"; "Damage to Property of Others"; "Contractual Damage to Property of Others"; "Products Bodily Injury"; and "Products Damage to Property of Others". By endorsement, the territory of the Policy with respect to "Products Bodily Injury" and "Products Damage to Property of Others" was extended to "Worldwide" provided the suits or actions were brought in Canada or the continental United States of America. By exclusion number 2, the coverage given by the Policy was not to apply to "[t]he liability imposed upon the Insured by any Workmen's Compensation Plan or Agreement or for bodily injury to or the illness or death of any employee of the Insured while engaged in the business operations of the Insured".
The Policy was cancelled in May of 1975 for reasons unrelated to this appeal. In August of 1979, the appellant instituted the present proceedings.
In its statement of claim, the appellant alleged that the Insured had failed to disclose material facts within its knowledge relating to health risks associated with the inhalation of asbestos fibres. In particular, the appellant claimed that the Insured failed to bring to the Insurer's attention medical research papers (the "Selikoff Reports") which contained data relating to both the incidence of respiratory disorders among workers in asbestos‑related industry and to the mortality rate of such workers.
By way of defence, the respondent admitted that it had the Selikoff Reports in its possession prior to the issuance of the Policy but stated nonetheless that it had fully and fairly represented every fact which showed the nature and extent of the risk. Subsidiarily, the respondent claimed that any material facts which the appellant alleges were misrepresented or concealed were actually facts known to the appellant or which the appellant was presumed to know as a result of their public character and notoriety. On this point, the respondent also noted that the custom and usage of the asbestos trade were common knowledge and that the appellant, if uninformed for whatever reason, was under a duty to inquire. The alleged hazards arising from the use of asbestos were said to be equally open to the knowledge of both appellant and respondent. If the appellant failed to inquire, it was negligent in not doing so. In any event, the respondent claimed to have fulfilled its obligations by responding to the general questions put to it regarding the nature of the risk to be insured. Finally, the respondent stated that by intervening in 1975 on the respondent's behalf pursuant to the terms of the Policy in a court proceeding in the United States, the appellant was barred from seeking avoidance of the Policy at a later date. By assuming its responsibilities under the Policy, the appellant had waived or renounced any alleged rights to avoid the Policy and could now be met with a fin de non‑recevoir.
The Asbestos Industry and the Selikoff Reports
As noted above, the respondent is and was at all relevant times involved in the mining and selling of asbestos and the manufacturing and selling of asbestos products. The dangers associated with the use of these products are now well known and have been documented in medical publications since 1907 when the first known case of asbestosis was reported. The first description of the disease and its concomitant pathological changes was published in 1927. However, the most important studies of asbestos‑related diseases were published in the 1960s by Drs. I. J. Selikoff and J. Churg of the Mount Sinai School of Medicine of New York. These studies reported a very high incidence of such diseases among asbestos insulation workers. The authors summarized the results of their first study as follows:
An investigation involving 1522 asbestos insulation workers in the New York‑New Jersey metropolitan area has been conducted. Among 392 individuals examined more than 20 years from onset of exposure, radiological evidence of asbestosis was found in 339. In half of these, the asbestosis was moderate or extensive. In individuals with less than 20 years of exposure, radiological evidence of asbestosis was less frequent and when present, much less likely to be extensive.
Neoplastic complications of asbestos exposure were studied among 307 consecutive deaths in this group of men. Lung cancer was found to be at least seven times as common as expected and cancer of the gastrointestinal tract three times as common as expected. There were 10 instances of mesothelioma of the pleura or peritoneum.
Of the 1258 men alive at the start of this survey, 1117 were examined. Eleven cancers of the lung or pleura were found during this survey of the living members, all among the 392 men with more than 20 years from onset of exposure. No cancers were found in those men, the onset of whose work experience was less than 20 years.
We may conclude that asbestosis and its complications are significant hazards among insulation workers in the United States at this time.
In their third report, Drs. Selikoff and Churg concluded as follows with respect to the carcinogenic effects of asbestos:
We conclude that, under the conditions of exposure associated with asbestos insulation work in the United States, a serious increased risk of death due to various neoplasms and asbestosis is present, including bronchogenic carcinoma, pleural mesothelioma, peritoneal mesothelioma, and possibly gastrointestinal cancer. We conclude further that for bronchogenic carcinoma, but not necessarily for other neoplasms associated with asbestos exposure, cigarette smoking has an important cocarcinogenic effect. We have inadequate data to this point to determine whether this will or will not prove to be true with regard to pleural mesothelioma.
The respondent admitted that the Selikoff Reports had been in its possession before the Policy was first issued in 1970.
It also emerges from the evidence that both the Insured and other members of the asbestos industry were not only in possession of the Selikoff Reports but also aware of the matters contained therein. The Quebec Asbestos Mining Association and the Institute of Occupational and Environmental Health, in which Canadian Johns‑Manville executives participated along with others, sponsored studies dealing with asbestos‑related diseases. Executives also attended several international conferences on the biological effects of asbestos held between 1964 and 1970.
The Relationship Between Insurer and Insured
The Insurer complains that the information contained in the Selikoff Reports should have been disclosed by the Insured before the Policy was initially issued because of the materiality of the information contained therein. The product liability coverage offered by the Policy is only part of the "comprehensive" coverage it provided, and, accordingly, the disclosure made by the respondent dealt in general with its business activities and with its past claims experience. The trial judge described the exchange of information which actually took place between the appellant and the respondent as follows:
The agency which negotiated the risk on behalf of the insured was Marsh & McLennan Limited. No written application was made by Johns‑Manville nor was any requested by the plaintiff. The policy was issued upon the brokers supplying the plaintiff with an outline of the required coverage, a placement slip labelled "Canadian General Liability Questionnaire" which listed the insured's manufacturing, mine and sales locations, the description of its operations, the estimated payrolls and sales, the number of its employees, a short description of its railway operations and of its hospital and nuclear energy exposure. Plaintiff's underwriting department was also supplied with a list of the insured's claims' experience from July 1946 to March 1970, together with a short description of the claims made against the insured between February 1964 and October 1969. All of the described losses, excepting a few instances, were property damage losses for amounts of less than one thousand dollars. None of the losses appears to have arisen from any products' liability coverage. The underwriters were also supplied with a copy of the 1969 Annual Report of Johns‑Manville Corporation, which is the insured's parent company.
([1985] C.S. 719, at p. 722.)
After receiving the preliminary information, the Insurer did not ask for any information regarding asbestos and asbestos products. The follow‑up was described by the trial judge, at pp. 722‑23:
Upon receipt of this information, plaintiff only asked for the following: a) a copy of the expiring policy, b) a nuclear energy risk application and c) applications for the persons to be protected by the requested mal‑practice coverage.
On the basis of the information which was supplied, an underwriting trainee of the plaintiff's Montreal office issued the policy with the authorization of the Head Office underwriter.
According to the trial judge, there was no evidence as to whether any additional information was requested or supplied upon the renewal of the Policy in 1973.
The information actually provided to the appellant in 1970 does make reference to the Selikoff research. In the 1969 Annual Report of the Johns‑Manville Corporation, the Insured's parent company disclosed that it was cooperating in scientific studies concerning the health effects of asbestos and specifically referred to the Selikoff research:
HEALTH RESEARCH
Johns‑Manville is cooperating with and, in many instances, sponsoring scientific research projects to identify and control occupational exposure to health risks, especially those involving asbestos.
One of these activities, the Insulation Industry Hygiene Research Program, is the nation's first cooperative effort by labor, industry, science and government to conduct a health research program for industrial workers.
Under the direction of Dr. Irving J. Selikoff at Mount Sinai School of Medicine of the City University of New York, this program, launched in October, 1968, has made considerable progress in developing improved methods of minimizing the exposure to dust and fumes of men who apply and remove pipe and equipment insulations in buildings, industrial plants and ships.
Field study of insulation work practices on construction jobs has resulted in the development of devices that sharply reduce the dust created by sawing insulation materials.
Johns‑Manville research scientists have developed a new and more efficient filtering media for disposable face masks to be worn by insulation workers. Several leading mask manufacturers have been licensed by J.‑M. [Emphasis added.]
None of the members of the Insurer's underwriting department who testified indicated that they had read this extract, and all claimed that they knew very little or nothing about asbestos and nothing whatsoever about asbestosis. The trial judge found that the Insurer had been negligent in investigating the general liability risk it was underwriting and stated, at pp. 735‑36:
The facts established in this connection are:
a) the risk was assessed by an underwriting trainee without experience;
b) none of the plaintiff's underwriters in Montreal where the risk was written or in Winnipeg, where the company's chief underwriter accepted it, had any knowledge about asbestos as such nor about any of the risks involved in the handling of this product;
c) no research as simple as looking up an encyclopedia was done by any of them.
In short, the proof leaves little doubt that plaintiff accepted the risk almost blindly as far as its possible product liability exposure was concerned, none of the underwriters concerned having stated that they had completely read the 1969 Annual report.
Proof Regarding Public Character and Notoriety
A vast amount of evidence was adduced during the trial in order to show that the risks associated with the use of asbestos were sufficiently public and notorious to fall within the exception to the rule that the insured must disclose all material facts. The trial judge listed the various sources, at pp. 729‑30:
The relevant proof regarding notoriety up to June 30th, 1970 [sic], date of the renewal, can be generally summarized as follows:
a) numerous reports on asbestos‑related diseases published from 1924 to 1970 in Canadian and foreign medical and scientific journals . . . ;
b) large numbers of papers delivered at sundry conferences held throughout the world prior to 1970 in connection with the biological effects of asbestos and which could be found together with some of the reports mentioned above in Montreal at the office of the Institute of Occupational and Environmental Health ("I.O.E.H.") which had been set up by the Quebec Asbestos Mining Association ("Q.A.M.A.");
c) a large number of articles dealing with asbestos‑related health matters published in several Canadian cities, including Montreal and Winnipeg . . . ;
d) an extract from Best Loss Control and Underwriting Manual, which is an American publication which purports to outline the degree of hazard and an exposure index relating to different industries or products. The extract . . . relate[s] to Asbestos Goods manufacturing as of 1968. It states the degree of hazard and its exposure index to be high for Workmen's compensation and low for products liability. In the chapter entitled "Exposure" under the subheading "Accidents" asbestosis is mentioned in the case of Workmen's compensation coverage;
e) extracts from the 1963 edition of the Encyclopedia Britannica which included . . . :
i) its index which under "asbestos" refers inter alia to "dangerous occupations" and "asbestosis";
ii) the text under the word "Asbestos";
iii) the text under "Dangerous occupations" which mentions asbestos and states "Evidence strongly indicates that there is a significant increase in lung malignancy in men with asbestosis";
iv) the text under "Pneumonoconiosis" referred to various industrial diseases of the lung which inter alia under the sub‑heading "Diagnosis and Treatment" says "Once established, the majority of the severe pneumonoconioses are irreversible. Some syndromes may be arrested on cessation of exposure but others, such as silicosis and asbestosis, progress inexorably"; and
v) the text under "Respiratory system, Diseases of" which states inter alia "Asbestosis may develop in those exposed to inhalation of asbestos fibres. Over a protracted course, it involves the pleurae and pericardium ‑‑ the coverings of the lungs and heart ‑‑ and causes heart failure. Prevention of inhalation of such dusts is important, since there are no successful cures once the fibroses have developed." [Exhibit references omitted.]
The trial judge deliberately excluded from this list the non‑Canadian articles (mainly from the New Yorker and New York Times) published during the same period. He was of the opinion that notoriety could not be measured with reference to foreign media material.
The Quebec Workmen's Compensation Act, R.S.Q. 1964, c. 159, was noted by the trial judge. In 1938, the existing Workmen's Compensation Act was amended, and the new version specified that "silicosis" was an industrial disease and that the same word also included "the similar pathological condition which may result from the inhalation of siliceous or other dust from the extracting, isolating or treating of asbestos" (see An Act to protect workmen suffering from silicosis, S.Q. 1938, c. 89, s. 1). The Act to amend the Workmen's Compensation Act, S.Q. 1943, c. 27, ss. 5 and 6, provided that the expression "siliceous dust" shall mean "silica dust or other compounds of silicon, including asbestos" and that "asbestosis" itself be covered by the Act.
II ‑ Judgments of the Courts Below
The Superior Court
The judgment of Boudreault J. at first instance is a thorough treatment of the subject. He discussed the English, French and American cases and commentaries which might be said to impact on the law of insurance of Quebec, and, though I disagree with his conclusions, I am indebted to him for his clear presentation of the issues.
He first noted that art. 2488 C.C. is not engaged in this case because there were no allegations of fraud, and the Insured's good faith was never even put into question. He then dealt with the issue of the materiality of the facts allegedly not disclosed by the Insured at the time of the application for the Policy. Drawing on the wording of art. 2485, Boudreault J. stated, at p. 722, that an insured's duty of disclosure applies with regard to
every fact which shows the nature and extent of the risk, and which may prevent the undertaking of it, or affect the rate of premium; and it is the misrepresentation or concealment of a fact of a nature to diminish the appreciation of the risk or change the object of it that can be a cause of nullity of the contract. All such facts are labelled "material" both in the legal terminology and in the insurance industry.
After reviewing the contents of the Selikoff Reports, he concluded, at p. 725:
In the Court's view, this evidence leads to the conclusion that the Selikoff reports disclosed facts and not opinions and that these facts showed the nature and extent of the risk and which may have prevented the undertaking of it or affected the premium, or in other words facts material to the risk.
In the Court's opinion, it would be difficult to imagine anything more material to a products liability insurer than the knowledge of the serious danger of an insured's main product causing severe injury to a large number of workers whose work calls upon them to handle such product for a period of time.
He also stated that the Insured was in possession of the Selikoff Reports and was aware of their contents.
Boudreault J. then turned to the question of whether the Insured had discharged the duty of disclosure with respect to the hazardous nature of asbestos fibres. The Insured's sole basis for claiming that it had fulfilled this duty was the "Health Research" section of the Annual Report in which a passage referred to Selikoff's work. The trial judge was of the view that this passage said nothing about the serious dangers of handling asbestos because it appeared to have been carefully drafted to avoid raising fears in the minds of those reading it. Consequently, "the substantially full and fair representation required by the civil code" could not be said to have been provided (p. 726).
Boudreault J. found that the Insurer had no actual knowledge of the facts in question and went on to deal with whether or not an insurer has a duty to inquire or be informed, by virtue of presumed knowledge, constructive knowledge, and common knowledge or public notoriety.
With respect to presumed or constructive knowledge, the trial judge rejected the respondent's contention that an insured need not disclose to its insurer matters which the insurer in the normal course of its business ought to know. In the opinion of Boudreault J., this broader definition of knowledge, drawn mainly from the English common law, is not part of the law in Quebec where only those facts which are public and notorious are deemed to be part of the insurer's knowledge. He also rejected the argument based on an insurer's alleged duty to inquire, observing that the respondent had failed to cite any Quebec cases in support of such a duty. The trial judge added that the Supreme Court of Canada decision in Fidelity and Casualty Co. of New York v. General Structures Inc., [1977] 2 S.C.R. 1098, and the Quebec Court of Appeal decision in Angelillo v. Prévoyance, Cie d'assurances, [1983] C.A. 305, appeared to indicate that no such duty exists.
On the question of "public character and notoriety", Boudreault J. acknowledged that those words cover a wider range of facts than the concept of judicial notice. He adopted a definition of "public character and notoriety" which pointed to common or public knowledge, and he accepted that such knowledge might be acquired through certain information media, including specialised gazettes and general interest newspapers. He could not endorse, however, the view that health hazards relating to asbestos were public knowledge in 1970. In reaching this conclusion, he ruled that American newspapers, trade journals and other instruments were relevant to the question of the Insurer's actual knowledge of a material fact contained therein, but that these materials could not be part of the consideration of public character and notoriety in this case. The same was said of materials available at the Institute of Occupational and Environmental Health in Montréal, given that there was no evidence that these materials were known either to the Insurer or to the general public. He did not consider the evidentiary weight that should be given to references to asbestos and asbestosis found in the Encyclopedia Britannica. In concluding this section of his analysis, Boudreault J. stated, at p. 731, that "it is a principle of insurance law and of the sources considered by our codifiers that when a contract of insurance is entered into, the insurer should have a knowledge of the risk assured, real or presumed, equal to that of the insured".
Boudreault J. then dealt with the argument that the Insurer had breached its own obligation of acting with the utmost good faith and was for that reason prevented from seeking the invalidation of the Policy. After setting out the various facts which bore on this argument, the learned trial judge observed that the argument is based on the idea of "the reasonably‑competent underwriter", an idea which is supported in Quebec doctrine and which the judge qualified as "seductive", especially in a case as here where the insurer was negligent. In his view, however, it was not possible to find jurisprudential support for this approach, and the Insured's failure to disclose material facts therefore remained the determining factor in the case.
It was on this failure to disclose material facts, then, that Boudreault J. decided the case. He reasoned, citing art. 2487 C.C., that the good faith of the Insured does not render a contract valid. Concealment of material facts, whether in good or bad faith, vitiates the consent which is required in the formation of any contract. Accordingly, the insurance Policy was in fact a nullity, due to error as to the substance of the thing which is the object of the contract (art. 992 C.C.). He summarized his reasons in the following way, at pp. 739‑40:
To conclude on this chapter, the Court is therefore of the view that the contract of insurance herein did not attach, notwithstanding the apparent negligence of the plaintiff which under our law had no duty in the circumstances to investigate the facts and circumstances disclosed to it by the insured and which had no knowledge, constructive or otherwise, of the facts herein deemed to be material which, therefore had to be fully and fairly disclosed by the defendant.
He then disposed of a final, subsidiary defence raised by the Insured. According to this defence, the Insurer had shown by its action that it had confirmed the insurance contract and thereby renounced any rights it might have had to avoid the Policy. The Insurer had intervened on the Insured's behalf, pursuant to the terms of the Policy, in an American suit (Foxworthy) where asbestos‑related hazards were alleged, and in so doing, according to the view proposed by the Insured, had acquired actual knowledge of the health hazards associated with exposure to asbestos fibre.
Boudreault J. rejected this defence, or fin de non‑recevoir. He noted that the conditions for confirmation of an act which is voidable dictate that the Insurer have knowledge of the defect and an intent to rectify it. Accordingly, in the opinion of the trial judge, to prove knowledge of the defect, the Insured would have to show that the Insurer had acquired not only knowledge of health risks associated with exposure to asbestos but also knowledge of concealment of such facts by the Insured in 1970 and 1973. Only such full knowledge would have made the Insurer aware that the Insured had breached its obligation under art. 2485 C.C. The respondent had not proven such knowledge and therefore no confirmation of the Policy could be said to have occurred. The confirmation of the defect, in his view, had to be unequivocal.
Dealing with the defence of fin de non‑recevoir based on negligence, Boudreault J. stated that to succeed with this defence, the Insured would have to show that it had been prejudiced by the Insurer's negligence in not investigating in any way further the allegations in the U.S. Foxworthy action. In his view, the evidence did not show that the Insured had in any way modified its conduct as