The Court of Appeal intervenes in an interpretation dispute between a general contractor and its builders risk insurance carrier, the latter declining to indemnify the former for certain financial losses resulting from a flood that occurred at a construction site. FACTS General contractor CRT Construction Inc. (“CRT”) was charged with construction work by the City of Montréal (the “City”) in May 2017 at the Atwater drinking water treatment plant, a major project that included building several structures for underground water management. The City required CRT, among other things, to purchase builders risk insurance, which it did from the defendant insurer (the “Insurer”). At the time of securing the insurance, a flood coverage extension was taken out by way of endorsement, given the construction site’s proximity to a water source (the “Endorsement”). On November 12, 2017, a major flood occurred on site. The ensuing corrective work undertaken at the breach lasted around four (4) months. During this time, although CRT was able to continue a portion of the construction work (50%), the other portion remained at a standstill as it gave way to the repair work. A forensic accountant was hired by the Insurer to assess the extent of the damages allegedly sustained and claimed by CRT.1 These fall into two (2) categories: 1) costs incurred to repair the breach and restore the construction site2 (the “Costs of Repairs”) and 2) additional costs associated with construction delays3 (the “Additional Costs”). The Insurer agreed to indemnify CRT for the Costs of Repairs, but not for the Additional Costs. TRIAL Hence, the Superior Court of Québec was asked to study the policy at hand—including the Endorsement—and to decide the fate of CRT’s claim for the Additional Costs. The builders risk insurance policy provided that the base coverage included damage to “[translation] insured property arising from those perils designated as covered”. The term “property” referred to that property “located at the ‘construction site’”. The “cost of making good […]”, as well as “damage caused directly or indirectly by the interruption of construction […]” and “by delay, loss of market or loss of use”, were, on the other hand, excluded. However, the Endorsement provided that “[translation] coverage extends to direct physical loss or damage caused to insured property by a ‘flood’ occurring at the ‘construction site’ […]” and that damage resulting from a flood, under any coverage offered, were to be adjusted as one claim. Relying on the definition of “Sinistre” [“Occurrence”]4 included in the Endorsement, CRT contended that the extension of coverage applied to any type of damage, provided it resulted from a flood, such an interpretation being in keeping with CRT’s expectations, at the time of securing the insurance, to be fully covered in the event of flooding. The Insurer, however, argued the opposite: both the base coverage and the extension of coverage under the Endorsement applied only to direct damage to the insured property, the consequences of any delays otherwise being excluded. The trial judge agreed with the interpretation put forward by CRT and held that the claim for Additional Costs was admissible on grounds that: The Insurer viewed the flood as one and the same “Occurrence”—as it caused all costs claimed to be assessed, and the Costs of Repairs to be reimbursed to CRT, it follows that the Additional Costs should also be indemnified; The Insurer was unable to establish the applicability of any exclusion, and any ambiguity should be construed in favour of the insured; The definition of “Occurrence” included in the Endorsement provided for broad and complete coverage of any damage resulting directly or indirectly from a flood occurring at the construction site; and This interpretation, moreover, was in keeping with CRT’s reasonable expectations at the time of securing the insurance. APPEAL The Court of Appeal overturned the trial judgment. The interpretation upheld at trial did not take into account the true purpose of the insurance coverage, which is the cornerstone of the analytical framework. The Court recalled in passing the well-known three-stage test.5 Having found that the insurance coverage under the Endorsement applied in the event of a flood and thus simplifying the dispute, the Court of Appeal held that the terms of such Endorsement were clear and unequivocal: this extended coverage was limited to “[translation] direct damage to insured property”.6 Any losses of a different nature, such as the Additional Costs in the present case, were not included. There is no basis for resorting to the definition of “Occurrence” and doing so would have had the undesirable effect of unduly extending the coverage provided by the Endorsement. Relying on the Endorsement’s structure as a whole, the Court found that the definition of “Occurrence” was not meant to define coverage, but rather to implement the applicable deductible and limit of insurance. COMMENTS This decision is a practical reminder of the framework for interpreting an insurance policy and, further, of the overarching criterion that is the true purpose of coverage. Keeping this purpose and analytical framework in mind helps with interpretation, and also when it comes to resolving issues arising from a misalignment of an insured’s expectations with the insurance protection secured. It is also interesting to note the consideration of the text’s structure, in addition to its wording, as a guideline for analysis. Moreover, a review of this kind requires that the insurance policy as a whole be considered, rather than isolating the endorsements that are added to it and modify coverage. This is also the purport of the Supreme Court of Canada’s recent decision in Emond v. Trillium Mutual Insurance Co.7 It is worthy of note that the assessment was produced without taking into account the coverage under the builders risk insurance policy. Cleaning, securing and repairing the site. Additional wages and per diems, workers’ inefficiency, wage indexing and cost increases, plus administrative costs and loss of profits. “[Translation] ‘Occurrence’: all loss or damage attributable directly or indirectly to one cause or a series of similar or related causes. All such loss or damage shall be treated as one (1) and the same ‘occurrence’.” Namely, 1) proof by the insured that the claim is included in the insurance coverage provided, 2) proof by the insurer of the applicability of an exclusion and 3) proof by the insured of the applicability of an exception to the exclusion. Our emphasis. 2026 SCC 3. See para. 36 of the decision: “[36] Endorsements are not self-contained and standalone contracts disconnected from the insurance policy of which they form a part. An endorsement “changes or varies or amends the underlying policy” (Pilot Insurance Co. v. Sutherland, 2007 ONCA 492, 86 O.R. (3d) 789, at para. 21). Some endorsements may be “comprehensive on the subject of the particular coverage provided in the endorsement”, but they are still “built on the foundation of the policy” (ibid.; see also Pickford Black Ltd. v. Canadian General Insurance Co., [1977] 1 S.C.R. 261, at pp. 265-66). It follows that endorsements do not change the generally advisable order. Aspects of the endorsement that affect coverage are considered as part of the coverage conferred by the insurance contract, aspects that create exclusions are considered later, followed by any exceptions to the exclusions created.”

Lavery’s Annual Insurance Law Review will be held on Tuesday, February 17. This conference will provide a review and analysis of the most significant insurance law decisions rendered in Quebec over the past year. We will also discuss their practical implications for your organization, your risk management, and your business operations. The training is recognized by the ChAD and the Barreau du Québec. When: February 17, 2026, From 8:00 to 9:30 a.m. Speakers : Jonathan Lacoste-Jobin et Dominic Boisvert   In order to receive an attestation of attendance for continuing education purposes, please use your professional email address for registration and be sure to attend the entire webinar. Register to the webinar

On February 12, 2024, the Court of Appeal of Quebec handed down its decision in Société d’assurance Beneva inc. c. Bordeleau,1 dealing in particular with the burden of proof incumbent on an insurer when it denies coverage on the basis of an insured’s intentional fault, and an award of damages against an insurer for breach of its duty of good faith. The facts This decision was rendered further to a dispute between Société d’assurance Beneva inc. (hereinafter the “Insurer") and some of its insureds, including Mr. Michel Bordeleau, the owner of a multi-storey rental building that was damaged by fire. He lived in one of the units with his parents. According to the uncontested expert evidence presented, the fire originated in one of the storage spaces in the basement of the building, which was assigned to a lessee couple. Access to the basement and all storage spaces was locked. The cause of the fire was deemed to be intentional, given the traces of accelerant found in the area of the fire’s origin. The instigator or instigators were not identified. On November 21, 2016, 60 days after the fire, the Insurer denied coverage because of the intentional nature of the fire, which it attributed to its insured, Mr. Bordeleau. A few months later, on March 22, 2017, it reached an agreement with Mr. Bordeleau’s hypothecary creditor. The subrogation release provides for the Insurer’s payment of the balance of the hypothecary debt of $149,720.99, and subrogation to the creditor’s rights up to the amount paid. Mr. Bordeleau, in his belief that he had been harmed by the Insurer’s decision, instituted legal proceedings to recover the insurance benefit to which he claimed to be entitled, while also claiming damages. The Insurer filed a cross-application for recovery of the balance paid to the hypothecary creditor. The trial The trial judge, relying on the evidence, concluded that although the fire was intentional in nature, the Insurer had not discharged its burden of establishing the insured’s involvement in the fire. Taking this conclusion into account, she then proceeded to analyze the plaintiffs’ claim and to weigh the damages in light of the evidence and the limits of the insurance policy. In particular, she ruled in favour of Mr. Bordeleau’s claim for damages for the building, the amount of which was admitted. In addition, she ordered the Insurer to pay $15,000.00 in damages for nuisance and inconvenience caused by its conduct, which she considered faulty. This conclusion was based on the Insurer’s duty to act in good faith, to consider the facts and act on their basis, and to conduct a full investigation, duty which the Insurer had breached by failing to sufficiently follow-up on leads that could have identified who was responsible for the fire. In order to deny coverage, clear and compelling evidence of the insured’s involvement, going beyond mere suspicion, was necessary. Given the sometimes implausible and sometimes contradictory testimonies of the people met during the investigation, there was no such evidence. In other words, the claims adjuster had jumped to conclusions. In light of her conclusions, the trial judge dismissed the Insurer’s cross-application, which she deemed to be unfounded, without giving further reasons. The appeal The Court of Appeal first refrained from intervening in light of the Superior Court’s conclusions regarding the failure to demonstrate Mr. Bordeleau’s involvement in the fire. It did however intervene on the damages awarded for nuisance and inconvenience suffered by the insureds, and pointed out the following: [40] [translation] Firstly, apart from the strict mathematical calculation of the amounts payable, and perhaps other technical aspects not requiring the exercise of judgment, the processing of a claim is an obligation of means, not one of result. The fact that a court found at the end of a trial held many years after the incident that an insurer should have covered in the first place obviously does not mean that the insurer necessarily committed a fault other than its refusal to pay, making it civilly liable, let alone that it acted in bad faith. [41] In this case, there was nothing in the evidence to support a finding of fault or breach of the duty of good faith. [42] On the contrary, there is enough evidence to conclude that the investigation by the appellant and its experts, which led to the denial of coverage, was not botched. . . . In the opinion of the Court of Appeal, the evidence showed that the Insurer’s investigation had been done in a conscientious manner, in particular because it had transferred the claim file to a special investigative unit, mandated a fire origin and cause expert and external investigators, and interviewed many witnesses who could have provided information on the circumstances of the incident. Moreover, it had no allegations that the Insurer had failed to consider exculpatory evidence against its insured. In this context, although it took several years for the insured to obtain his due, with all the inconveniences of going through proceedings, the Insurer’s conduct could not be considered offending or revealing of bad faith. No damages could be awarded. Lastly, the Court of Appeal took a closer look at the question of the Insurer’s subrogation to the hypothecary creditor’s rights, which was little discussed in the judgment under appeal. Reiterating the fundamental principle in property and casualty insurance that the indemnification of an insured cannot result in enrichment, the Court of Appeal concluded that dismissing the Insurer’s cross-application would have such an effect. In addition to receiving an insurance benefit for the damages sustained, Mr. Bordeleau would also have had seen his hypothecary debt discharged. This would have given him a clear advantage. In this case, the benefit paid to the hypothecary creditor needed to be deducted from the damages claimed by the insured. The trial judge’s finding were thus revised accordingly. Conclusion Despite the clear principles addressed in this case, the Court of Appeal’s analysis points to practical difficulties that insureds and insurers can encounter when dealing with similar claims. It points to the coexistence of two factors that can be difficult to balance: First, the burden of proof where coverage is denied on the basis of the insured's intentional fault, and second, the insurer’s obligation of means in processing the associated claim. The dismissal of a coverage defence does not in itself warrant awarding damages. Société d’assurance Beneva inc. c. Bordeleau, 2024 QCCA 171

On June 7, 2023, the Minister of Finance of Quebec tabled and presented Bill 30 before the National Assembly, an omnibus bill entitled An Act to amend various provisions mainly with respect to the financial sector (hereinafter the “Bill”).  The Bill includes certain amendments to the provisions of the Insurers Act (“IA”) and the Act respecting the distribution of financial products and services (“DA”).  Although the Bill may evolve through the stages of the legislative process as Parliament resumes, here is an overview of the main amendments that are expected to have implications for the insurance industry. Proposed legislative changes As indicated, the legislative changes will affect both the IA and the DA. Below are the main amendments that will be made to each of these Acts should the Bill be assented to: Insurers Act The Bill proposes that associations constituted under the Civil Code of Québec be allowed to apply for authorization to carry on insurer activities among their members as a reciprocal union,1 and it sets out several provisions relating to the organization and governance of such an entity. The Bill clarifies the meaning of a reciprocal union, defining it as a group of parties that, under the terms of the contract constituting the union, join together to pool sums enabling them to be reciprocally bound by damage insurance contracts.2 The restriction preventing reciprocal unions from accepting a risk that would require them to pay, after reinsurance, an amount that exceeds 10% of the net value of their assets will also be lifted and replaced with a more general obligation to reserve sufficient sums to carry on their insurer activities.3 Life and health insurers will become subject to a new obligation to take the necessary means (which may be specified by regulation) to obtain certain information in order to determine whether an amount they have committed to pay under a life insurance contract is payable.4 As such, life and health insurers that know that a sum is payable will be bound, for a period of three years from the date the sum is payable, to take the necessary means (which may be specified by regulation) to inform beneficiaries that a sum is payable and provide them with support in making their claim. Act respecting the distribution of financial products and services Under the Bill, a person employed by a firm, an independent partnership or a claims adjuster will be allowed to carry out activities under the supervision of a claims adjuster in certain situations.5 The restriction preventing claims adjusters from acting in a sector other than claims adjustment will also be lifted.6 Section 424 of the ARDFPS will be amended to remove vehicle replacement insurance from products that can be distributed without a representative, which will particularly affect vehicle dealers.7 The directors and officers of a regulated entity will become solidarily liable with that entity for the payment of a monetary administrative penalty, unless they establish that they exercised due care and diligence. It will be possible to secure the payment of such monetary administrative penalty by a legal hypothec on the debtor’s movable and immovable property.8 What to expect It is important to note that the Bill is in its first stage of the legislative process and may be subject to change. Anyone wishing to comment on it may do so online on the National Assembly website. We will continue to follow the progress of this Bill. Do not hesitate to contact a member of Lavery’s insurance team if you have questions on the subject matter of this article. Section 1 of the Bill, amending section 6 of the IA Section 2 of the Bill, amending section 7 of the IA Section 21 of the Bill, amending section 188 of the IA Section 74 of the Bill, introducing section 72.1 in the IA Section 90 of the Bill, amending section 10 of the ARDFPS Section 92 of the Bill, striking out section 45 of the ARDFPS Sections 105 and 106 of the Bill, amending section 424 of the ARDFPS Section 71 of the Bill, introducing sections 115.2.1 and 115.2.2 in the ARDFPS