The appellant insurer appealed a decision requiring it to indemnify the respondent hypothecary creditor after the insured property was intentionally burned by the hypothecary debtor.
The insurer argued that under the Civil Code of Lower Canada, it was not liable for prejudice arising from the insured's intentional fault.
The Supreme Court of Canada dismissed the appeal, holding that the standard hypothecary clause creates a separate insurance contract between the insurer and the hypothecary creditor.
Because the creditor, not the debtor, is the insured under this second contract, the debtor's intentional fault is treated as the act of a third party and cannot be invoked against the creditor.
