Insurance

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

In the recent decision in Hashem c. Canada Life Assurance Company,1 rendered on January 12, Justice Karyne Beaudry of the Court of Québec reiterates the importance of doctors respecting their ethical obligations and preserving their professional independence when issuing a medical certificate in support of a disability insurance claim. Context of the insurance claim In this case, the plaintiff, Rayan Hashem (“Mr. Hashem”), representing himself, was claiming $67,133.28 in disability insurance benefits from the defendant, The Canada Life Assurance Company (“Canada Life”), under two credit insurance contracts issued for Royal Bank of Canada clients: one for a mortgage loan and the other for his line of credit. Mr. Hashem was also claiming $10,000 in moral damages due to Canada Life’s refusal to pay the benefits he believed were owed to him. On January 4, 2019, Mr. Hashem’s treating physician, Dr. Samuel Issid, diagnosed his patient with an adjustment disorder with depressive mood following an episode of psychological harassment at work. He concluded that there was a total incapacity for work for an indefinite period of time. Mr. Hashem then submitted an initial claim for disability insurance benefits, which was accepted by Canada Life. Upon expiry of the 60-day waiting period stipulated in the insurance contracts, Canada Life paid him benefits. As of June 2019, Mr. Hashem’s health condition was improving. Dr. Issid believed that returning to his job as a sales representative at Meubles Léon was impossible, but that he could do another job. On July 29, 2019, Dr. Issid noted that Mr. Hashem could gradually return to work starting that day. In his medical note dated August 7, 2019, he indicated that Mr. Hashem’s adjustment disorder was resolved. On August 6, 2019, Canada Life notified Mr. Hashem that the disability benefit payments would cease as of September 2019. From August 2019 to November 2019, Mr. Hashem performed paid transportation work for Uber. On October 4, 2019, Mr. Hashem consulted Dr. Issid again because he felt he was experiencing a relapse of his adjustment disorder. Dr. Issid found that he was indeed affected by an adjustment disorder with depressive mood, but believed he could do something else elsewhere and requested an expert opinion from the CNESST.  Dr. Issid did not prescribe medical leave, and Mr. Hashem continued to drive for Uber after this medical consultation. He stopped doing this job in November 2019, because “the job was not suitable for him” [translation], as he stated during the hearing. It was not until January 22, 2020, that Mr. Hashem consulted Dr. Issid again, still for his adjustment disorder. On that date, Dr. Issid noted the following: Not seen since October. Holds Uber taxi licence, studying to be a real estate broker. Lazy person, has not worked and wants two more weeks of pay at the expense of the CSST. Expert opinion already requested in October; I can’t help him and I don’t want to see him again for this case. [translation] Beginning in March 2020, Dr. Issid suspended his medical practice until September 2020 due to the COVID-19 pandemic. On April 8, 2020, Mr. Hashem consulted Dr. Yves I-Bing Cheng. The purpose of the consultation was to obtain “a medical document to reactivate his file and be able to claim insurance” [translation]. Dr. Cheng stated in his medical note that he could not sign such a document, as he had not been involved in Mr. Hashem’s case. He also noted that Mr. Hashem had seen Dr. Issid three times since August 2019 and that he could have spoken to him about it on those occasions. On September 24, 2020, Mr. Hashem returned to see Dr. Issid, who, at his request, filled out the Canada Life Disability Benefit Claim Form. On it, Dr. Issid indicated that Mr. Hashem became disabled on December 14, 2018, and that his condition initially improved, only to deteriorate later due to COVID-19. Mr. Hashem submitted this form to Canada Life to support his new claim for disability benefits. At the hearing, the Court gave little credence to this form completed by Dr. Issid: first, Justice Beaudry noted that Dr. Issid had found that Mr. Hashem’s disorder was resolved in August 2019, and secondly, she noted that Dr. Issid did not see Mr. Hashem again between February and September 2020. She was of the opinion that the diagnosis seemed to be based more on assumptions than on clinical observations. She found that the form was completed at Mr. Hashem’s insistence. On February 10, 2021, Canada Life informed Mr. Hashem that it refused to pay further disability benefits because he did not meet the definition of total disability under the policies, in particular because he had not provided satisfactory evidence of his disability. On March 26, 2021, Mr. Hashem submitted another claim for benefits, this time supported by medical forms completed by Dr. Yves I-Bing Cheng. In them, Dr. Cheng indicated that Mr. Hashem had been totally disabled since December 14, 2018, due to an adjustment disorder with anxious-depressive mood, and that no date for his return to work was planned. Dr. Cheng mentioned the following in his medical note on the same day: I filled out the insurance form with the patient, point by point, to make sure that everything complied with the patient’s wishes. [translation] This new claim was also rejected by Canada Life. The Court found that the information recorded on the form completed by Dr. Cheng had little to no credibility. It is important to note that neither of Mr. Hashem’s treating physicians testified at the hearing to contextualize or explain their diagnoses. No expert report was submitted for the plaintiff. In its defense, Canada Life produced the expert opinion of a psychiatrist, Dr. Paul-André Lafleur, who testified at the hearing. Justice Beaudry notes that Dr. Lafleur had been practicing psychiatry for 40 years, that his testimony was clear, and that his findings were supported by facts that he himself observed during an interview conducted with Mr. Hashem, or that emerged from extracts of his medical records or from the CNESST. Dr. Lafleur concluded that Mr. Hashem’s medical condition between August 2019 and December 2022 did not render him incapable of holding a sales representative position, although he acknowledged that he could not hold this position with his former employer. Justice Beaudry found Mr. Hashem’s testimony to be not very credible and noted that Mr. Hashem had a subjective perception of his inability to work. He refused to take any position other than the one he held at Meubles Léon before his claim to Canada Life. Based on the evidence, Justice Beaudry found that Mr. Hashem had not demonstrated that he was entitled to disability insurance benefits as of October 4, 2019. Given his skills and abilities in the field of sales, he could hold a sales representative position elsewhere than with his former employer. Canada Life was therefore justified in rejecting his claims for disability benefits in September 2020 and March 2021. Credibility of the insured’s medical evidence Although the doctors consulted in the context of the new benefit claims maintained the diagnosis of adjustment disorder as of October 4, 2019, the Court emphasizes that this diagnosis alone was not sufficient to establish the existence of a disability meeting the contract’s criteria, especially since this diagnosis was supported by inconsistent and unreliable medical evidence. The mere fact that a doctor has filled out a claim form does not automatically entitle the insured to compensation: the definition set out in the contract remains applicable and the criteria must be met.2 The ethical obligations of a doctor and the consequences of writing an unfounded medical certificate In this case, the Court reminds doctors of the importance of supporting their medical certificates with objective clinical observations and avoiding simply endorsing the requests of their patients. Medical certificates issued at the insistence of patients, or by giving in to their pressure, are considered false certificates.3 The ethical obligations of doctors prohibit them from issuing such certificates and, more generally, from providing information they know to be inaccurate,4 in particular in the aim of allowing a patient to obtain a benefit to which they are not entitled.5 Conclusion  Medical certificates must be founded exclusively on medical grounds arising from an actual assessment of the patient’s condition.6 They must not be founded on extraneous or irrelevant considerations.7 In addition to damaging the credibility of the medical profession, issuing false certificates has significant repercussions in the workplace and generates considerable financial costs for employers, insurers, and the government.8 Key points to remember In disability insurance matters, the terms and definitions of the insurance contract are paramount and are the main elements that must guide the interpretation and determination of the insured’s disability status. Medical certificates and claim forms are only elements used in determining the insured’s state of disability and are not proof of disability in and of themselves. A medical diagnosis is not automatically a sign of disability. It is important for functional limitations to be identified. Having a qualified expert who is able to comment on the insured’s medical condition at the hearing can make a big difference in the outcome of litigation. Hashem c. Canada Life Assurance Company, 2026 QCCQ 41. G.G. c. SSQ, société d’assurance-vie, 2017 QCCQ 9442, par. 19 COLLÈGE DES MÉDECINS DU QUÉBEC, ORDRE DES CONSEILLERS EN RESSOURCES HUMAINES AGRÉÉS, ORDRE DES INFIRMIÈRES ET INFIRMIERS DU QUÉBEC, Certificats médicaux et travail, (Medical Certificates and Work), June 2025, p. 14, online: https://cms.cmq.org/files/documents/Guides/gui-certificats-medicaux-travail.pdf Code of ethics of physicians , CQLR, c. M-9, r. 17, s. 7 and 85. Ibid. , s. 97-98. Médecins (Ordre professionnel des) c. Larouche, 2018 CanLII 6869 (QC CDCM), para. 184. Médecins (Ordre professionnel des) c. Léonard, 2025 QCCDMD 27 (CanLII), para. 169. Op. cit. note 3.

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