May 2018
PFD | Insurance

The insurer's duty to defend the insured

By Marie-Ève Dufort Lawyer

On December 6, 2017, in Syndicat Lofts Wilson v. 1061 St-Alexandre, the Honourable Élise Poisson of the Superior Court of Québec handed down a ruling on the duty of insurer Royal & Sun Alliance Insurance Company of Canada (hereinafter RSA) to defend the insured Constructions Reliance du Canada ltée (hereinafter Reliance).

The relevant facts are as follows. In April 2010, Reliance was engaged as a general contractor to renovate an old building and convert it to condominiums. In September 2011, the architect issued a completion certificate along with a list of the work to be completed. In October 2012 and January 2013, the technologist hired by the Syndicat Lofts Wilson syndicate filed reports attesting to several construction deficiencies. Reliance required the correction of these deficiencies by the various subcontractors involved in the project. Dissatisfied, the syndicate filed an introductory motion seeking damages against Reliance in October 2015.

Reliance conveyed the claim to its liability insurer RSA, which provided Reliance's liability insurance in the period during which the work was carried out, from July 2013 to July 2014. RSA reviewed the claim and notified Reliance that it was not covered since there had been no loss. The insurer asserted that the only element that was covered was the damage to the concrete slab, which is crumbling and collapsing under the weight of the building and its users. Reliance challenged the decision and filed a claim in court against RSA to require it to take up its defence in the dispute.

It is important to note that the insurer's duty to defend is different from its duty to indemnify. As stated by the Supreme Court of Canada in Progressive Homes v. Assurance Générale Lombard: "the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy."

When the insurer refused to take up the insured's defence, the insured then had to demonstrate that the damages claimed are indeed covered by the policy and stem from a loss.

In this particular case, the defective work of which Reliance was accused has not caused any damage to the plaintiff's property, and none of the facts alleged in the motion, with the exception of those pertaining to the slab, constitute a loss, as defined in the insurance policy. The alleged defects therefore do not give rise to the insurer's obligation to defend the insured.

The Court dismissed Reliance's motion.