In a recent judgment by the Honourable Daniel Beaulieu, J.C.S., Procureure générale du Québec c. Consultants Aecom Inc. (2021 QCCS 1072), an insurer’s obligation to defend their insured was once again examined by the Court.
In 2003, the Claimant, Gervais Dubé Inc. (“Gervais”) had performed work for the Procureur Général du Québec (“PGQ”) and had, among other things, been tasked with building retaining walls. Gervais, the general contractor, had allegedly subcontracted this task to Béton Provincial Inc. (“BPI”) who had performed the work based on the plans provided by Gervais in September 2004.
In the winter of 2005, fissures started to appear on a section of the retaining wall. In October 2011, an engineer noted that two areas of this same wall had become deformed. A third and fourth area of deformation were further noted in November 2011 and November 2012 and various measures were put in place to try and control the issues and prevent additional problems over time. Unfortunately, over the night of May 11th to May 12th, 2013, a separate stretch of the retaining wall spanning 20 metres collapsed with no warning.
Unsurprisingly, Gervais and other contractors were sued by the PGQ for over 5.6 million dollars. PGQ alleged that there were various problems, ranging from the very conception of the project to oversight and executions issues. In their statement of defence, Gervais denied all liability.
All three insurers denied coverage to Gervais. Aviva Compagnie d’Assurance Du Canada (“Aviva”) and Royal & Sun Alliance Du Canada Société d’Assurances (“RSA”) policies were in force during the time the deformation of various sections of the retaining wall was noted (between October 23rd, 2003 to March 31st, 2011 and March 31st, 2011 to March 31st, 2013, respectively) and La Compagnie d’Assurance Travelers Du Canada’s (“Travelers”) policy was in force as of March 31st 2013, when the entire collapse of the other retaining wall occurred.
In addition to filing an action in warranty against the three insurers, Gervais filed a Wellington motion against them, imploring them to take up their defence in the suit and to pay their legal costs. They also asked that their own counsel be appointed to the case, rather than having new counsel appointed by their insurers, as would normally be the case.
Gervais’s motion to compel Aviva and RSA to defend them was rejected by the Court, which ruled that in the allegations contained in the motion to institute proceedings, even if taken as fact, were insufficient to justify coverage on the part of these insurers. Indeed, the actual “loss”, as defined by the policy, had only truly occurred when the wall collapsed in 2013. While fissures on the wall had appeared in 2005, they were simply repaired and no claims against Gervais were made by the Claimant. Again, in 2011 and 2012, when the deformations were observed at different locations of the wall, no claim was made against Gervais by the Plaintiff.
Gervais’s motion to compel Travelers to defend them, however, was granted by the Court. Travellers had attempted to deny their duty to defend under two separate arguments. With respect to the first argument, the Court decided that Gervais did not and could not have known that a claim was already underway or had already occurred: the initial cracks on the wall had been taken care of to the satisfaction of PGQ and the deformations affecting the wall were only under investigation. Furthermore, neither of these elements was claimed in Plaintiff’s motion against Gervais. Finally, the section of the wall which collapsed was entirely distinct from the previously problematic areas.
The second argument was based on the fact that the insured’s work product was specifically excluded from coverage under the policy, and that Gervais could not benefit from the exception to this exclusion reserved for subcontractors, since Gervais had not employed any for the project. The Court concluded that since the determination of coverage must be made by examining the allegations of the motion, whether or not they can be proven at the time, there was insufficient evidence to conclude whether Gervais had or had not hired a subcontractor. For this reason and because of PGQ’s clearly exposed timeline, the Court ruled that it was possible that coverage was indeed triggered for Gervais under Traveler’s policy and that as such, they were required to defend them in this suit. The Court further ruled that the insurer could appoint counsel of their choice to the case and that the legal fees incurred by Gervais to date were to be reimbursed by Travelers.
There is no question that courts are increasingly erring on the side of caution and favouring the insured where coverage questions are raised. Insurers must take this shift into account when assessing their claims, notably in the application of the “Your Works” clause, whose strength has been gradually eroded by several seminal decisions over the course of the past few years.
However, this case also provides Insurers with a glimmer of hope: Gervais sought coverage from three Insurers based on the premise that the damages were gradual and continuous and that therefore all policies would be triggered for their respective portion of the loss, to be determined later. While this would have possibly been the easier exercise, it is of note that the Court rejected this theory and rather held that there was only one triggering event, that is, the collapse of the retaining wall in 2013, thus relieving two out of three insurers of their duty to defend in this matter. We query whether the courts will be more inclined to apply this precise approach now that it has been enshrined in Quebec jurisprudence.