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Exceptions To Mandatory Costs-exclusive Policy Limits In Québec – Insurance Laws and Products

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Up until the adoption of Bill 82 and its regulations, Quebec was
the only Canadian province where an insurer was legally obligated
to take up the defence of its insured and cover legal fees over and
above the limits of insurance set out in the policy,
notwithstanding a policy provision providing for a costs-inclusive

Bill 82

On May 21, 2021, Bill 82, titled An Act respecting mainly
the implementation of certain provisions of the Budget Speech of 10
March 2020 (
Act”), was
adopted. The Act modifies article 2503 of the Civil Code of
Québec (the ”CCQ”), which
previously read as follows:

2503. The insurer is bound to take up the interest of any person
entitled to the benefit of the insurance and assume his defence in
any action brought against him. Legal costs and expenses resulting
from actions against the insured, including those of the defence,
and interest on the proceeds of the insurance are borne by the
insurer over and above the proceeds of the insurance.

The Act adds a third paragraph to article 2503 CCQ:

However, the Government may, by regulation, determine
categories of insurance contracts that may depart from those rules
and from the rule set out in article 2500, as well as classes of
insureds that may be covered by such contracts. The Government may
also prescribe any standard applicable to those contracts.

Which refers to article 2500 CCQ:

2500. The proceeds of the insurance are applied exclusively
to the payment of injured third persons.

The new paragraph added to 2503 CCQ provides that the Government
may introduce regulations to exempt certain categories of insurance
contracts from the blanket costs-in-addition legal
requirement, which was, until now, without any exceptions in Quebec

Which categories of insureds may derogate from the costs-in

On May 5, 2022, the Regulation respecting categories of
insurance contracts and classes of insureds that may derogate from
the rules of articles 2500 and 2503 of the Civil Code
Regulation“) came into effect.

Through this Regulation, the following categories of insureds
may now negotiate policy terms departing from the previous legal
requirement for all policy limits to be exclusive of costs in

  • drug manufacturers;

  • Capital régional et coopératif Desjardins;

  • the Fonds de développement de la
    Confédération des syndicats nationaux pour la
    coopération et l’emploi;

  • the Fonds de solidarité des travailleurs du
    Québec; and

  • the directors, officers or trustees of those entities.

The Regulation also applies to the following insureds, as long
as their total coverage under the civil liability policy subscribed
is at least CAD $5,000,000:

  • a large business for the purposes of the Act respecting the
    Québec sales tax;

  • a person related to a large business within the meaning of the
    Taxation Act;

  • a reporting issuer or a subsidiary of such a reporting issuer
    within the meaning of the Securities Act;

  • a foreign business corporation within the meaning of the
    Taxation Act or the Income Tax Act; and

  • the directors, officers or trustees of those entities can also
    be subject to those changes.

For this derogation to be possible, the duration of the policy
period cannot exceed one (1) year. In the case of a renewal, the
insured must again meet the conditions for exemption at the time of

What does this mean for insurers doing business in

These new legislative changes will certainly lead to a new way
of negotiating insurance contracts for large businesses in

These exemptions are likely to have an effect on writing excess
insurance in Québec. The issue of whether defence costs must
be entirely borne by the primary insurer up until settlement or
judgment, or whether these costs must be shared with excess
insurers, is one that causes much disagreement within the
Québec legal community and is currently being debated before
the courts. The new possibility of costs eroding policy limits for
these categories of insureds is likely to provide more
predictability to all insurers participating in large insurance

It is important for insurers to keep in mind that it is possible
to negotiate costs-inclusive policy limits with these categories of
insureds, but the limits on policies emitted to these categories of
insureds are not automatically inclusive of costs. If no provision
within the policy expressly provides for costs eroding policy
limits, the policy will fall under the general CCQ rule of the
limits being costs-exclusive.

We will be following the effects this Regulation has on the
insurance market in Québec and will be sure to provide any
relevant updates through future newsletters.

This article was written with the collaboration of
Jérôme Coderre, Summer Student.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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