An Insurer’s Duty to Defend

In Développement les Terrasses de l’Îles inc. v. Intact, Compagnie d’assurances2019 QCCA 1440, the Court of Appeal of Quebec enforced Intact Insurance Company’s duty to defend, by overturning the Superior Court’s decision absolving the Insurer of its duty.

In this case, the Insureds purchased a commercial general liability insurance policy from Intact Insurance Company. An action was brought against the Insureds for damages and defects caused during the construction of a building. The claim was later amended to include damages resulting from structural issues, mould and water infiltration. The Insureds brought a claim against Intact when their Insurer declined to defend the action on the grounds that the damages claimed were not covered by the Policy.

The Superior Court held that the damages claimed did not result from a “loss” pursuant to the Policy, but instead, from construction and design errors attributed to the Insureds. Thus, the damages claimed were not covered by the Policy.

In a unanimous decision, the Court of Appeal overturned the ruling. The court reiterated a long standing principle that an Insurer’s duty to defend is triggered if the Insureds can demonstrate that material damages may be recoverable under the scope of the Policy. The Insurer can then resort to deferring liability if it can prove that a clear and unambiguous exclusion clause can preclude the claim. Intact had not proven that an exclusion clause excluded coverage, so it would be required to compensate for material damages, but not for the cost of remedying the consequences flowing out of those damages, such as water infiltration.

While there was some contention in discerning whether the damages occurred as a result of the defect, or were defects in and of itself, the court concluded that the duty to defend had been triggered nonetheless.

The court also advised that coverage provisions were to be interpreted broadly while exclusion clauses were to be interpreted restrictively. The court held that the lower court interpreted “loss” too narrowly. The design defects had caused unforeseen material damage and this was sufficient in triggering the Insurer’s duty to defend.

This case provides interesting dicta about an Insurer’s duty to defend and opines on the limits of this duty. While this decision may be persuasive, it is not binding on the courts of Ontario.