A bad arrangement is better than a good trial
Article 1074.2 of the Civil Code of Quebec: a bad arrangement is better than a good trial
By François G. Cellier
A real Achilles’ heel for many syndicates of co-owners, article 1074.2 of the Civil Code of Quebec could destabilize financial stability.
And for a good reason, the adoption of bill 141 (June 13, 2018)—which revisited the law on condominium insurance—has significantly changed the rules governing civil liability. Since then, when a loss originates from a private portion, the co-owner’s insurer can refuse to pay the syndicate’s deductible. By analysing article 1074.2, the insurer may feel that it does not have to do so unless the fault of its client is proven.
In many cases, proving fault requires going to court. Any amount of $15,000 or less can be recovered at the Small Claims Division at the Court of Québec, in which case the legal fees are marginal. However, if the amount to claim is between $15,001 and $85,000, one must proceed to the Court of Québec, where all legal entities, including syndicates of co-owners, must be represented by a lawyer. From then on, the amounts incurred in legal proceedings could be substantial.
Some insurers are reluctant to go to court and end up paying, in whole or in part. Others don’t see it that way and defend their point of view. “As a general rule, when the syndicate has to prove the co-owner’s fault before a judge, it faces a headwind. The chance of winning the case depends on its ability to demonstrate the fault. Because of the particularities of certain claims, it is not always easy to do,” says Maxime Laflamme-Leblond, a lawyer specialized in co-ownership law at LJT Avocats.
THREE LEGAL REGIMES
When talking about deductible claims against a co-owner, three legal regimes apply, depending on when the loss occurred. If it happened before bill 141 came into force, the co-owner or his insurer would have to pay. In principle, at least. Because as of June 13, 2018, the entry into force of article 1074.2 changed everything: a syndicate must prove “an injury caused by its fault.” We are talking here about the fault of a co-owner.
“This situation yielded semantic debates, because insurers felt that the expression ‘caused by his fault’ is more restrictive than ‘being held liable’,” said emeritus lawyer Yves Joli-Coeur said in a previous issue of Condoliaison magazine. As a result, insurers could refuse to reimburse a syndicate’s deductible.
That said, the adoption of bill 41 on March 17, 2020, amended article 1074.2. “The fault must still be proven, but a co-owner may also be held liable for damage caused by the act or fault of another person or by the fact of property in his custody,” explains Maxime Laflamme-Leblond. This property can be a water heater, a washing machine or a bathtub, to name a few.
PROCEDURES FOR DEDUCTIBLES’ CLAIMS
A syndicate claiming reimbursement for the payment of its deductible from a co-owner must first send a formal notice to the co-owner in question. If the loss occurred before June 13, 2018, an insurer might plead current law to avoid its obligations. “But since article 1074.2 did not exist at the time of the loss, obtaining reimbursement should be relatively simple,” says Maxime Laflamme-Leblond.
For any loss having occurred between June 13, 2018, and March 17, 2020, things may get tougher, which is why a putting in demand will have to specify (in detail) the fault committed by the co-owner. In certain circumstances, it will be difficult to argue this fault with conviction. For example, if a sudden and unanticipated event occurs, such as a washing machine dysfunction due to an unsuspected defect. If, on the other hand, the same washing machine shows signs of defects, such as loose hoses, poor handling or maintenance, there may be grounds for a claim.
However, in the case of a loss that occurred after March 17, 2020, the sky could be clearer by virtue of the liability for the fact or fault of a property or person in the custody of a co-owner, thanks to the combined effect of articles 1074.2 and 1465 of the Civil Code of Québec. “In any event, even if a co-owner’s insurer says no, nothing prevents a syndicate from suing the co-owner personally because of a legal relationship between the co-owner and his syndicate,” says Maxime Laflamme-Leblond. In such a situation, the burden of proof would be reversed, as was the case before June 2018, meaning that it would be the co-owner’s responsibility to prove that he has not committed any fault.
TO CLAIM THE AMOUNT OF ITS DEDUCTIBLE FROM A CO-OWNER, A SYNDICATE HAS THREE OPTIONS
Suppose the cost of the work to repair the damage exceeds the amount of the deductible. In that case, the syndicate must first pay the deductible to obtain adequate compensation from its insurer afterwards. It can then claim the amount of the deductible from the concerned co-owner.
Suppose the cost of the work to repair the damage is less than the amount of the deductible. In that case, the syndicate must proceed with the repairs, after which the co-owner in question shall reimburse it.
If the syndicate does not claim compensation from its insurer, it cannot claim a deductible from a co-owner.
But in the case of a loss occurring after March 17, 2020, the skies could clear, by virtue of liability for the fact or fault of property or a person in the co-owner's custody. The combined effect of articles 1074.2 and 1465 of the Civil Code of Québec would make the exercise all the easier. "In any case, even if a co-owner's insurer says no, there's nothing to prevent a syndicate from suing the co-owner personally, because of the legal relationship between the co-owner and the syndicate," says Maxime Laflamme-Leblond. In such a situation, the burden of proof would be reversed, as was the case prior to June 2018, i.e., it would be up to the co-owner to prove that he has committed no fault.
Even though section 1074.2 was amended by bill 41, many insurers continue to interpret its previous version. “In my opinion, the amendment did not particularly clarify the applicable rules because the notion of fault is still in the picture,” regrets Maxime Laflamme-Leblond. As a result, insurers often continue to plead the absence of fault and challenge syndicates to take legal action.
The question is: is it worth suing if a claim is between $15,000 and $35,000? It is difficult to decide, even if the legal fees would mean that the syndicate would likely lose out, as it would receive much less than the expected amount. “Therefore, for an amount ranging from $18,000 to $20,000, it is better to reduce it to $15,000 and opt for a small claims procedure,” says Maxime Laflamme-Leblond.
But once the $35,000 threshold is crossed, it is generally worthwhile to go to the Court du Québec, even if the legal fees will eat into the amount claimed. Proving that a co-owner is at fault will be the ultimate objective. If this is the case, a judge will consider whether the amount claimed is payable in whole or in part. Depreciation may apply, depending on the age of the components at the time of loss. For example, a 30-year-old carpet would not be reimbursed at its original value.
Since the adoption of bill 141 is relatively recent, only a few decisions involving section 1074.2 have been published. In addition, it should be noted that one-third of the cases submitted to the court settle outside of court. “It is better to accept 50% of the amount claimed than to go to court, even if it means making a counter-offer to get a little more,” concludes Maxime Laflamme-Leblond. After all, as the old saying goes, a bad settlement is better than a good trial.Condoliaison Vol.22 No1
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