Recent legal developments in Québec are fundamentally changing the way insurance business is transacted in the province. Specifically, these developments include changes to Québec’s French language, privacy obligations, and the duty to defend, which affect how insurers, brokerages, and Managing General Agencies (MGAs) will underwrite and conduct business with insureds in Québec.

Following the implementation of Bill 96 and Bill 64 (defined below) and the amendment to section 2503 of the Civil Code of Québec, the Autorité des marchés financiers (AMF) has confirmed that they presently do not intend to change any specific regulation or guideline. As a result, it is up to the insurer, brokerage, and MGA to interpret the legislation and determine compliance, thus making it a challenging environment for the insurance industry to navigate.

This article sets out a high-level summary of the recent legal updates with respect to the French language law requirements, the new privacy law obligations, and the amended public policy principles of an insurer’s duty to defend and the corresponding implications these changes will have on the insurance industry.

An Act respecting French, the official and common language of Québec (Bill 96)

On May 24, 2022, the National Assembly of Québec adopted Bill 96, which received royal assent on June 1, 2022. Bill 96 modifies over 25 legislations, most notably the Charter of the French Language (the Charter), the Constitution Act of 1867, the Charter of Human Rights and Freedoms, and the Civil Code of Québec.

Amendments brought about by Bill 96 focus on the use of French in commercial relationships, contract law, education rights, dealing with the administration, labour relations, the judiciary, and the broadened scope of sanctions for non-compliance. For insurance providers, compliance with these new requirements requires particular attention to detail regarding contracting, service provision, and an understanding of possible sanctions.

Application to insurance institutions

Although not explicitly provided in the amended Charter, the Government of Québec has confirmed that it will require enterprises under federal jurisdiction (e.g., banks, telecommunications, and interprovincial transportation companies, etc.) to comply with the provisions of the Charter, as modified by Bill 96, in respect of their operations and business dealings in Québec.

Whether or not an insurance provider will be considered a “financial institution” depends on definitions found within varying legislations. Still, the bottom line is that regardless of where the business emanates from, any business coming into Québec and offering services into the province must comply with the new requirements, including insurers. Though some requirements are yet to be in full force, most of them did enter into force on June 1, 2022. Notably, insurers should be mindful of the following:

1. Services must be offered in French

A financial institution must be able to interact with any person or client in French and communicate with clients in French. Thus, all information about itself, its products, and services must be made available in French to all their clients in Québec. Additionally, a financial institution must comply with the obligations regulated by the Charter by supporting and being able to carry business in French as need be. Concretely, the following documents must be written in French: catalogues, brochures, invoices and receipts, and any other document of the same nature. However, if the French version is equally accessible, it is possible to produce a version in another language.

2. Contracting language

Effective June 1, 2023, section 55 of the Charter creates an obligation to draft contracts of adhesion in French, whether in paper or electronic format. Contracts of adhesion are generally pre-determined by one party and contain printed standard clauses. Many insurance contracts would generally be considered contracts of adhesion, given that many of the essential provisions of an insurance contract are drafted unilaterally by the insurer. Such contracts will only be valid if the French version has been previously provided to the client and the client has expressed their wish to obtain the contract in another language.

A contract used in relations outside Québec does not have to be drafted in French within the meaning of the first paragraph of section 55 of the Charter. Thus, companies doing business outside Québec, for example, in the United States, may use a contract in the language of their choice. That being said, some exemptions are available from the requirement to produce a French version, such as:

• Loan agreements;
• Financial instruments and contracts whose object is the management of financial risk (most notably, currency swap agreements or interest rate agreements, contracts for the purchase or sale of options, and futures contracts);
• Contracts with a person or company operating a clearing house;
• Contracts concluded on a platform for the trading of derivatives, securities, or other movable assets (provided, in the latter case, it is not a consumer contract); and
• Insurance policies having no French equivalent in Québec when they come from outside Québec, or their use is not widespread in Québec.

Thus, bespoke insurance contracts (e.g., manuscript policies) or niche insurance products will likely be exempt from the French translation requirement. However, insurers should be mindful that even customized insurance contracts may be considered contracts of adhesion under Québec law and thus subject to section 55 of the Charter.

3. Dealing with the civil administration and public bodies

Bill 96 also imposes a new requirement that all contracts entered into between a private company and the civil administration be drafted exclusively in French, including all subcontracts. These requirements will come into force on June 1, 2023. However, there are exceptions where the contract may be drafted in both French and another language, such as loan contracts, financial contracts (whose purpose of which is to manage financial risks, including currency or interest rate swap agreements), and contracts entered into in Québec between the civil administration and a co-contractor located outside Québec.

Furthermore, certain contracts may be drafted only in a language other than French, including when the administration contracts outside Québec and when the contract is an insurance policy that does not have a French equivalent and that originates outside Québec, and its use is not widespread in Québec.

Written material sent to a government agency by a business to obtain a permit, a license, an approval, an authorization, a grant, or other forms of financial assistance, must be written exclusively in French. Written documents must also be drafted exclusively in French when the civil administration is a party to a contract. The AMF advised that while they have not yet issued a press release regarding the requirement to provide written correspondence for licensing and approvals in French, they expect that their processes will be affected by Bill 96.

The Charter and e-commerce

Bill 96 also grants the Office québécois de la langue française (OQLF) new powers to oversee online shopping, most notably to prohibit persons located in Québec from purchasing goods and services with foreign companies that do not comply with the Charter. Thus, insurers that sell directly online to consumers may be faced with orders to stop providing insurance products in Québec. The actual use of this power is still uncertain, as foreign companies may not be subject to the application of the Charter, thus making it difficult to impose such sanctions on them.

4. Sanctions for non-compliance

The scope of sanctions has been broadened by Bill 96 to include administrative, civil, and penal sanctions. Non-compliance with the new requirements will result in the issuance of an order by the OQLF under section 204.24 of the Charter. Penal sanctions resulting from failure to comply with such order are set out in section 205 of the Charter.

A contract, judgment, or any other act containing a provision that contravenes the Charter may be nullified at the request of the person who suffers the damage. The nullity will be deemed absolute if an agency of the civil administration is a party to the Act, even without prejudice. A party may also request a reduction in their obligations under the Act. Upon application for the imposition of a sanction, the court may make any order as it sees fit. It is important to note that a party that is invoking nullity of a contract of adhesion does not have to prove that the failure to comply with section 55 of the Charter (as discussed above) caused injury. Rather, the onus falls on the non-compliant party to prove that there was no injury resulting from not having provided a French version as required by the Charter.

Penal sanctions include fines for contravening the Charter, which now range between CA$700 and CA$30,000 (s. 205 of the Charter). These amounts are doubled for a second offence and tripled for any subsequent offence (s. 206 of the Charter). For each day the offence continues, fines are applied (s. 208 of the Charter). In cases of prolonged non-compliance, it is even possible that a company’s permit be revoked. Directors and officers of a company will also be deemed to have personally committed the offence, and fines will be doubled in comparison to the fines applicable to other individuals (s. 207 of the Charter). Though directors and officers may use a due diligence defence, it is nonetheless imperative for insurers to ensure compliance with the new requirements. It is still unclear how a director or officer would invoke due diligence in cases of non-compliance. Having strong policies and procedures in place to ensure compliance or ensure that policies fall within the available exemptions would likely help in proving due diligence.

An Act respecting the protection of personal information in the private sector (Bill 64)

Significant amendments to Bill 64, modeled on the European Union’s General Data Protection Regulation (GDPR), start coming into force on September 22, 2022, such as the obligation to appoint an individual responsible for privacy compliance in the organization and mandatory breach notification. Most provisions come into force on September 22, 2023, including multi-million dollar fines to be imposed by the Commission d’accès à l’information. The right to portability, being the right to obtain the transfer of one’s personal information from one organization to another upon request (i.e., from one insurance company or broker to another) in a readable format to ensure interoperability, comes into force on September 22, 2024.

The new provisions of Bill 64 particularly impact insurers, brokerages, and MGAs in relation to sensitive personal information and automated decision systems.

Insurers, brokerages, and MGAs all handle highly sensitive information related to health, lifestyle, and financial benefits. Bill 64 requires that: i) sensitivity of personal information be taken into account in determining the obligation to notify in case of a data breach; ii) the use of such information for another purpose than the one for which it was collected or communication of that information be subject to express consent (opt-in); and iii) sensitivity of the information be considered in privacy impact assessments regarding the storage of data outside Québec.

Automated decision systems such as those used for data modelling and risk assessment will be regulated by Bill 64. Where the decision rests exclusively on an automated process, the organization must inform the individual of the use of such systems, provide access to the personal information about the individual used to make the decision upon request, and give the individual the opportunity to have it corrected and to present observations to a person that is in a position to correct the decision.

Regulation respecting categories of insurance contracts and insured parties that may depart from the rules of articles 2500 and 2503 of the Civil Code

On May 5, 2022, Québec brought into force the Regulation respecting categories of insurance contracts and insured parties that may depart from the rules of articles 2500 and 2503 of the Civil Code.  Article 2503 of the Civil Code of Québec provides that the insurer provide a defense of its insured and that such defence costs are in excess of insurance policy limits (the Principle). This Principle was amended on June 7, 2021.  Article 2503 now permits the Government of Québec to pass a regulation to determine certain categories of insurance contracts and insured parties that will not be subjected to the Principle. 

The Regulation provides that an insured who, at the time of subscription of a civil liability insurance contract, is exempt provided they qualify as one of the following:

• The insured is a drug manufacturer (under the Act respecting prescription drug insurance Chapter A-29.01);
• The insured (or one of its subsidiaries) is a legal person incorporated under the Act constituting Capital régional et coopératif Desjardins, the Act to Establish Fondaction, le Fonds de Développement de la Confédération des Syndicats Nationaux pour la Coopération et l’emploi or the Act to establish the Fonds de solidarité des travailleurs du Québec; and
• The insured is a director, officer, or trustee of the two classes mentioned above, even if the latter is not insured under such a contract.

More importantly, an insured may also be exempt from the Principle where the total coverage under all liability insurance contracts subscribed by that insured is at least CA$5 million, and it falls into one of the following categories at the time of subscription:

• The insured is a “large business” within the meaning of the Act respecting the Québec sales tax or is a person related to a large business within the meaning of the Taxation Act (Québec);
• The insured is a reporting issuer or a subsidiary of such a reporting issuer within the meaning of the Securities Act (Quebec);
• The insured is a foreign business corporation within the meaning of the Taxation Act or the Income Tax Act (Canada); and
• The insured is a director, officer, or trustee of any entity referred to in any of the three preceding paragraphs, even if such entity is not insured under such a contract.

It is important to note that these exemptions do not apply to multi-year insurance policies and only apply to policies with a duration of no more than one year. For annual policies, the conditions set out above must be met at the time of each renewal. The Regulations further provide that if a minimum amount of civil liability coverage is required at law, all insurance proceeds must first be applied to the payment of injured third parties before any other payment can be made. This ensures that policies, where the defense costs are within limits, will continue to meet the minimum standards of insurance coverage.

These changes are welcome news for the insurance industry, and corresponding adjustments to rates and policy language will have to be implemented by insurers, even if only a few categories of insureds can benefit from the changes. These legislative amendments mark a first step forward in providing much-needed capacity in the Québec insurance market at lower rates.  

Key takeaways

Each of the recent legislative changes will have a marked impact on the insurance industry.

Bill 96 has introduced a number of requirements that are likely to significantly impact  how insurers operate in the Québec market. Insurance industry participants must now navigate a complicated regulatory framework to remain compliant with the French language laws. While some in the industry are concerned that Bill 96 will result in an increase in premiums and a further reduction in capacity available, the exemptions discussed above do allow for some maneuvering in the product offering. In the absence of guidance from the AMF, the insurance industry will develop cost-efficient practices that comply with the new regulations.

With respect to Bill 64, insurers, brokerages, and MGAs that process data from Québec should now start to update their compliance frameworks to meet their obligations under the new privacy legislation. In particular, industry participants should pay specific attention to the changes regarding sensitive personal information and automated decision systems.

Lastly, the changes to the Principle might have the effect of benefiting the Québec insurance market by increasing capacity and reducing premiums. We can anticipate that in the future, the government will add additional categories to which the exemption will apply to put the Québec insurance market on a level playing field with the common law provinces.

In light of the above regulatory changes, it will be important for industry stakeholders to monitor the legal developments in case law or regulatory guidance to properly interpret and apply these new requirements. Given that there is currently no guidance on the impact of the above-noted changes, it is important that insurers, brokerages, and MGAs seek legal advice to ensure continued compliance with Québec regulations when operating in Québec.

For more information, please reach out to the authors, Laurie LaPalme, Emil Vidrascu, Chantal Bernier, and Katie May O’Donnell.