On April 18, 2024, the Court of Appeal of Quebec (the "Court") rendered a judgment of prime importance in Promutuel Vallée du St-Laurent, société mutuelle d'assurance générale v. Noyrigat-Gleye, 2024 QCCA 447, concerning the duty to defend claims for injunctive reliefs and punitive damages.
The Court also seizes the opportunity to indicate in which cases the insurer is bound to defend the entire claim, subject to the eventual allocation of defence costs, where the claim is partially not covered by the insurance policy.
A. The Proceedings
The facts are simple. The plaintiff Guy Bélanger (the "Plaintiff") sues the insureds Nelly Noyrigat-Gleye and Guilhem Labertrande (the "Insureds") because they allegedly cut trees on his property, modified its slope, and built a retaining wall thereon. He seeks compensatory damages of $38,098 for the trees and of $7,500 for stress, troubles and inconveniences, punitive damages of $24,200 pursuant to the Tree Protection Act, as well as two permanent injunctions for the removal of the retaining wall and the restoration of the slope.
The Insureds makes a claim to their civil liability insurer, Promutuel Vallée du St-Laurent (the "Insurer"), which agrees to take up the defence except for the two injunctions and the punitive damages. In response, the Insureds file a Wellington motion, which is granted by the motion judge on March 20, 2023.
The Insurer appeals this judgment. It argues that it does not have to defend the claims for injunctions and punitive damages because they are not covered under the insurance policy. However, the Court dismisses the appeal and orders the Insurer to assume the defence of the entire claim. Here is why.
B. The Analysis
I. The Injunctions
First, the Court stresses that the determination of a Wellington motion turns on the true nature of the claim beyond the labels used in the pleading and the sanction or conclusion sought. The duty to defend is triggered if, based on the true nature of the claim, there is a possibility that the insurer will have to indemnify the insured pursuant to the insurance policy.
In this case, the policy covers the "financial consequences of civil liability" and "is limited to compensatory damages". While the Plaintiff decided to proceed by injunction, the Court considers that the purpose of the injunctions sought is to indemnify past harm, being the alteration of the slope and the construction of the retaining wall, and that they could therefore be covered under the insurance policy.
To illustrate its ruling, the Court notes that the Plaintiff could have assessed the property's restoration costs and instituted a claim for these costs, which could have been covered under the policy. Further, if the injunctions are granted, the costs incurred by the Insureds to remediate the property could also be covered without changing the true nature of the claim.
In contrast, the Court explains that an injunction for the execution of a duty to act or not act would not be covered by the insurance policy. For example, an injunction seeking the specific performance of a service or the enforcement of a non‑competition clause pursuant to a contract would not be covered, as it would not be compensatory in nature.
Essentially, the Court concludes that the Plaintiff's choice to proceed by injunction does not change the true nature of the claim, which seeks the compensation of the material injury caused by the Insureds. It thus confirms that the injunctions could be covered and that the Insurer must defend that portion of the claim.
II. The Punitive Damages
According to the Court, the issue of punitive damage raises different questions, since they are expressly excluded by the following clause:
WE DO NOT COVER:
[...]
1.e) sums which are not purely compensatory in nature, such as fines, penalties, and punitive or exemplary damages.
[Our translation from the original French]
Since punitive damages are excluded, the issue is whether the motion judge could order the Insurer to take up the defence of the entire claim (including with respect to the punitive damages), subject to the allocation of defence costs at the end of the proceedings.
The Court responds in the affirmative. It concludes that the insurer can be bound to retain a single lawyer to defend the entire claim, even non-covered portions, where it would be unreasonable and unjustified to require that a second lawyer be retained by the insured solely to defend the non-covered portions.
The reasons of the Court find their source in procedural law. It explains that, while the duty to defend does not extend beyond what is covered by the insurance policy, its execution must comply with the guiding principles of civil procedure and reconcile the interests of all parties where possible.
In some case having a second lawyer defend the non-covered portions of the claim would unnecessarily delay the proceedings and increase costs for all parties and the judicial system. In these circumstances, the insurer is bound to defend the entire claim, even what is not covered. That said, the insurer has a right to claim the reimbursement of defence costs associated with the non-covered portions of the claim at the end of the proceedings, to the extent that they can be separated from costs associated with the covered portions.
The Court provides a list of factors which must be considered to determine whether the insurer must take up the defence for the non-covered portions of the claim. These include, but are not limited to:
- The unicity or not of the triggering facts between the covered and non‑covered issues;
- The importance, connexity and complexity of the non-covered issues;
- The necessity or not of specific evidence for the non-covered issues;
- The proportion of the proceedings pertaining to the non-covered issues;
- The risk of a conflict of interests if a second lawyer is hired;
- The whole based on the guiding principles of civil procedure.
Based on these factors, the Court finds that the motion judge correctly ordered that the Insurer defend the claim for punitive damages, subject to the allocation of defence costs at the end of the proceedings. Notably, in this specific case, the punitive damages sought under the Tree Protection Act were subject to the same triggering facts and evidence as the claim for covered compensatory damages. Therefore, the retention of a second lawyer solely to defend the non-covered claim for punitive damages was not justified.
Take Away
This decision of the Court of Appeal provides important insights concerning the duty to defend injunction claims and the execution of said duty where the claim is partially not covered.
As it pertains to the injunctions, the position of the Court is nuanced. It is important to define the purpose of the injunction in view of the insurance policy before jumping to conclusions. If the injunction aims to put the plaintiff in the same position as before the loss, the duty to defend could be triggered since the injunction serves a compensatory purpose. However, if the injunction seeks the execution of a duty to act or not act without repairing past harm, it then cannot be assimilated to compensatory damages.
As to the execution of the duty to defend when the claim is partially not covered, the judgment provides helpful guidelines, notably a list of factors that must be considered to determine if the lawyer retained by the insurer must defend or not the non-covered portions of the claim. In any case, the defence costs related exclusively to the non-covered portions are at the expense of the insured and can in theory be recovered by the insurer at the end of the proceedings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.