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.”

In a recent decision1, the Quebec Court of Appeal examined an insurer's duty to defend under a directors and officers errors and omissions insurance policy in a dispute involving non-competition obligations. FACTS From 2016 to 2020, the appellant, Alain Déry ("Déry"), held the position of Vice President of Sales and Marketing for a U.S. company operating in the field of magnesium recycling, Advanced Magnesium Alloys Corporation ("Armacor"). He was bound by non-competition and confidentiality agreements. Starting in 2018, while still employed, he nevertheless collaborated with a competing Canadian company, Alliance Magnésium Inc. ("Alliance"), by providing it with confidential business information. In October 2019, talks began between Alliance and Déry regarding the latter's potential position within the company. These discussions came to fruition in March 2020, when Déry and Alliance agreed that he would take on the role of Vice President of Business Development starting in January 2021. In June 2020, however, Déry was immediately dismissed by Armacor when his practices were finally revealed. Armacor promptly filed injunctive proceedings in U.S. courts against both Alliance and Déry. In the fall of 2020, the parties reached an agreement whereby Déry undertook not to work for Alliance and disclose sensitive information about Armacor to it. This agreement was not honoured. Alliance's insurers assumed its defence, but not Déry's, a right he claimed, suggesting that given his significant contribution to Alliance's activities and the nature of the tasks he performed for it, he was a de facto officer. According to this proposition, he qualified as an officer under Alliance's directors and officers errors and omissions policy. Dissatisfied with the denial of coverage, Déry brought the matter before the Quebec courts by means of a Wellington-type application to force the insurers' hand. FIRST INSTANCE The trial judge dismissed Déry's application. The allegations rather indicate that at the time of the alleged events, Déry was an officer of Armacor, not Alliance. Déry had also formally committed to no longer work for Alliance in 2020. The fact that he shared sensitive business information with Armacor and then used it at Alliance to the latter's advantage did not make him a de facto officer, however beneficial that sharing of information may have been. Still dissatisfied, Déry appealed the decision. APPEAL The appeal panel first reiterated the well-known principles of the duty to defend, which, as a reminder, apply regardless of the type of policy involved. Following the analysis of the trial judge, this duty was examined in light of the allegations in the proceedings and the supporting evidence, keeping in mind the true purpose of the claim. The Court then concluded that both his obligations as an employee of Armacor and his subsequent commitments in connection with the U.S. legal proceedings precluded Déry from working for Alliance. Moreover, none of the allegations suggested that he was an officer of the Canadian company. Incidentally, the Court noted that Déry's claims contradicted those set out in the affidavit filed in support of his Wellington-type application. While he claimed to have made a major contribution to Alliance's business, he stated under oath that he did not have full knowledge of how it was used. CONCLUSION Although at first glance this decision appears to be a simple application of facts—albeit unusual ones—to recognized and well-established legal principles, it certainly serves as a reminder of the framework for analyzing the duty to defend: the question is whether the action, by its true nature reflected by the allegations, falls within the scope of the coverage offered. This true nature remains the key criterion. Potential defences should not be used to divert or complicate the analysis; resorting to them may even play against the person claiming coverage, as in this case. This decision highlights the increasingly creative claims that insurers are facing. In an era of costly justice, whether to assert or defend rights, the significant financial risks associated with claims invariably lead to a proliferation of such claims and debates. Keeping the analytical framework in mind allows us to better understand the scope of the coverage and make more informed decisions. Déry c. Arch assurances Canada ltée, 2025 QCCA 179

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 October 13, 2017, the Supreme Court of Canada rendered an important decision1, putting an end to a jurisprudential and doctrinal debate on civil liability and prescription in the field of municipal liability. Facts In October 2010, Ms. Maria Altragracia Dorval ("Dorval") was murdered by her ex-spouse. The respondents, who were close relatives of Dorval, blamed the police officers of the City of Montreal ("City") for failing to follow up on Dorval's complaints in the weeks preceding her murder. In October 2013, the respondents instituted an action in damages against the City, as principal of the police officers. In a motion to dismiss, the City argued that the six-month time limit for prescription set out in article 586 of the Cities and Towns Act2 ("CTA") applied and that the respondents' action was prescribed. According to the City, the respondents were not direct victims of bodily injury and could nottherefore take advantage of the three-year prescription period set out in article 2930 of the Civil Code of Quebec3 ("C.C.Q."), which states, in particular, that an action based on bodily injury is prescribed by three years, notwithstanding any contrary provision. The respondents, in turn, argued that, even as indirect victims, they did benefit from prescription under article 2930 C.C.Q. on the basis that the purpose of the recourse is to compensate for damages arising from a bodily injury. Issue in dispute Was the respondents' recourse as indirect victims extinguished because they failed to comply with the prescription period of six months under the CTA, or did they also benefit from the three-year prescription period provided in article 2930 C.C.Q.? Case law and doctrine The disputed issue, while dealing with the prescription period, raised the question of how the injury was to be characterized. In this case, did the indirect victims suffer a bodily injury? The issue of characterizing the injury gave rise to two different lines of authority in the case law and doctrine. The first line of authority characterizes the injury, whether it be bodily, moral or material, on the basis of the consequences of the interference suffered by the victim. Thus, it focuses on determining the effects of the wrongful act, downstream, and on characterizing the injury as a function of the damages suffered. In this case, since the damages suffered by the indirect victims were not bodily in nature, they were not victims of bodily injury, but rather, of moral or material injury. The second line of authority characterizes the injury on the basis of the type of interference itself, and therefore upstream. The focus here is on characterizing the wrongful act itself, i.e., whether it pertains to the physical integrity of the person, his or her property, or psychological integrity. Next, the consequences of this interference are characterized as pecuniary or non-pecuniary damages. In this case, given the nature of the interference was a bodily injury, the injuries suffered by the victim's relatives would also be characterized as bodily in nature, causing them pecuniary and non-pecuniary damages, depending on the death's impact on those persons. Proceedings in the lower courts The Superior Court granted the City's motion and dismissed the respondents' action, holding that it was prescribed. Following the first line of authority, the court found that only immediate victims can take advantage of the three-year prescription period conferred by article 2930 C.C.Q., since only they have suffered a "bodily injury". The Court of Appeal, following the second line of authority, held instead that the respondents' action was not prescribed. It found that the injury must be characterized according to the type of interference that caused it, and not based on the nature of the damages claimed. Accordingly, since the respondents' action was founded on a bodily injury, it was therefore covered by the three-year prescription period under article 2930 C.C.Q. Supreme Court of Canada In a majority judgment written by Justice Wagner, the Court found that the basis of the action brought by the respondents was the reparation of Dorval's bodily injury resulting from the City's wrongful interference with her physical integrity. It therefore held that article 2930 C.C.Q. must be interpreted in favour of the indirect victims of a bodily injury. In reaching this conclusion, the Supreme Court first considered the decision of the Court of Appeal in the Tarquini case.4 In that matter, the plaintiff claimed damages from the City of Montreal as a result of the death of her spouse in a bicycle accident. As in this case, the City of Montreal pleaded the short prescription period under the CTA. The Court of Appeal found that the plaintiff's recourse was not prescribed on the basis that the bodily injury in question under article 2930 C.C.Q. did not solely contemplate the injury suffered by the immediate victim, but rather, any damages resulting from a bodily injury, including those of indirect victims. Next, the Supreme Court, acknowledging that the expression "bodily injury" must be interpreted as resulting from interference with a person's physical integrity, opted to resolve the issue by reference to the basis of the action as instituted, in accordance with the second line of jurisprudential and doctrinal authority. It submitted that the characterization of the victims' action, whether as direct or indirect, is determined on the basis of the type of interference alleged, whether bodily, material or moral. As for the consequences thereof, they correspond to the heads and the characterization of the damages claimed. The Supreme Court indicated that the purpose of article 2930 C.C.Q. is to protect personal integrity and ensure the full indemnification of victims. Consequently, eliminating the distinction between direct and indirect victims favours the achievement of this objective by conferring on all victims the benefit of an extended prescription period. Furthermore, the Supreme Court was of the view that to distinguish between immediate victims and collateral victims would have the effect of creating two different prescription periods for the same wrongful act. This inconsistency is avoided by favouring a broad interpretation of article 2930 C.C.Q. The Court also noted that, since the Tarquini decision, both the doctrine and case law had preferred this interpretation, favouring the stability of the law. The Court held that "any civil liability action instituted to claim reparation for the direct and immediate consequences of interference with a person’s physical integrity must be based on the obligation to make reparation for bodily injury caused to another"5 within the meaning of article 2930 C.C.Q., whether it be the recourse of the direct victim or indirect victim. Thus, indirect victims are also entitled to the prescription period of three years. Dissent We note that Justices Côté and Brown, preferring the first line of authority referred to above, issued a dissenting opinion. In their opinion, since the respondents were not direct victims of interference with physical integrity, they could not rely on article 2930 C.C.Q. Accordingly, they found that the respondents' action was based instead on the obligation to compensate for the moral and material injury they had suffered as a result of the death of their relative, and not on the bodily injury which was in fact suffered by Dorval alone. Only a person having suffered interference with his or her own physical integrity could benefit from the three-year prescription set out in article 2930 C.C.Q. In our view, the country's highest court has clearly resolved the debate on this issue.   Montréal (Ville de) c. Dorval, 2017 SCC 48 Cities and Towns Act, C.Q.L.R., c. C-19 Civil Code of Quebec, C.Q.L.R., c. CCQ-1991 Montréal (Ville) c. Tarquini, [2001] RJQ 1405 Montréal (Ville de) c. Dorval, 2017 SCC 48, para. 55