The appeal by an insurer ("Ecclesiastical") from a declaration that an insurance broker ("Kouri") had no liability for premiums received for an extension of insurance was allowed where the court held that by unilaterally sending out certificates of insurance, the broker had created valid contracts of insurance.
M.B. Kouri Insurance Brokers Ltd. v. R.L. Gougeon,  O.J. No. 5584, December 22, 2010, Ontario Court of Appeal, J.C. MacPherson, R.G. Juriansz and J.L. MacFarland JJ.A.
Kouri was in insurance broker whose clientele consisted of approximately 175 campground operators. Ecclesiastical provided insurance to Kouri's clients. Insurance was arranged through Ecclesiastical's broker R.L. Gougeon Ltd. Kouri had a sub-broker agreement with Gougeon. The agreement between Kouri and Gougeon provided that only Gougeon and not Kouri had authority to bind Ecclesiastical to any insurance contract. Prior to the expiry of the insurance coverage for the campgrounds on May 31, 2004, Kouri began to make inquiries as to whether Ecclesiastical would renew coverage. Kouri did not receive a response from Ecclesiastical and on May 10, 2004 took the unilateral step of issuing certificates of insurance renewing the insurance coverage by Ecclesiastical for the period May 31, 2004 to May 31, 2005. Kouri sent its clients an invoice for the renewed coverage and an increased premium.
On May 17, 2004 Ecclesiastical notified Gougeon that it was extending the insurance program for 30 days while it continued to consider whether it would renew the program. By the end of June, Kouri had still not received confirmation of Ecclesiastical's renewal of the program and arranged coverage with another insurer commencing July 1, 2004. Kouri then sent to the alternative insurers the monies that it had received on the invoices it sent out for the Ecclesiastical coverage plus its commissions. Subsequently, Ecclesiastical sought premium payments for the month of June 2004. Kouri took the position that Ecclesiastical had provided the 30-day extension of insurance coverage on a goodwill basis and began an action against Ecclesiastical for a declaration that it was not liable to pay Ecclesiastical or Gougeon any premiums for the 30 day extension.
The trial judge found that when Ecclesiastical extended its insurance coverage for 30 days it did not stipulate that there would be a premium for the extension. In the context of the circumstances, especially Ecclesiastical's failure to deal with the renewal of insurance in a timely manner, the trial judge concluded that Ecclesiastical had granted the extension on a no premium basis because of its own lack of diligence. The declaration sought by Kouri was granted. Ecclesiastical appealed the decision.
The Court of Appeal allowed the appeal finding that the trial judge had erred by focusing on the 30-day extension of insurance rather than Kouri's unilateral extension of Ecclesiastical's insurance coverage for the period May 31, 2004 to May 31,2005. Further, the Court of Appeal found that the trial judge had failed to apply s. 402 of the Insurance Act, RSO 1990, c.I.8 (the "Act"). Section 402 of the Act provides that an agent is deemed to hold any premium in trust for the insurer. The Court of Appeal agreed with Ecclesiastical that Kouri's unilateral act of sending out certificates of insurance on its behalf had created valid contracts of insurance. The Court rejected Kouri's argument that the certificates had been ineffective because Kouri had no authority to bind Ecclesiastical. The Court noted that it was not Kouri's authority under its broker agreement that was at issue but its ostensible authority from the point of view of the insureds. Based on the circumstances, the Court concluded that Kouri had received the money as premium payments for a contract of insurance with Ecclesiastical and, instead of holding the money in trust and paying it over to the insurer, it paid the money to the new insurer in breach of s. 402 of the Act.
In the result, the Court set aside the declaration granted by the trial judge and granted Ecclesiastical's counterclaim for $75,510 plus costs and disbursements.