On March 1, 2013, the Court of Appeal rendered a judgment on the
insurer's duty to defend and indemnify the insured in the area
of commercial general liability insurance. 1It confirmed
the decision of the trial judge which had held that the insurer has
the duty to defend and indemnify2, and ordered it to
reimburse its insured for the amounts paid to settle the claim of a
third party and the amounts incurred by the insured in defending
itself against the action.
On the one hand, the Court found that the general coverage of
the policy was occurrence-based. However, an extension to the
policy also gave the insured, a manufacturer, claims-based coverage
for its errors and omissions. The Court therefore found that there
was an ambiguity which enabled it to apply the contra
proferentem rule set out in article 1432 of the Civil Code
of Québec. The trial judge's interpretation of the
contract in favour of the insured was therefore without error.
On the other hand, the Court found that the insurer did not show
that the allegations that were not covered by reason of exclusions
in the policy itself could give rise to separate and quantifiable
defence costs from those incurred in defending the allegations that
were covered under the policy. Therefore, there was no reason to
apply a percentage to distinguish between the amounts claimed that
were covered and those that were not covered. The insurer was
therefore bound to pay all of the amounts incurred by its insured
for its defence.
Finally, the Court noted that the insurer's duty to defend
starts as soon as it is served with a formal demand and not upon
the service of the originating process. It reiterated what was
originaly decided by the Supreme Court of Canada in the case of
Nichols v. American Home Assurance
Co.,3 namely that the insurer must take up the
insured's defence in a "timely manner".
Lamarre inc., 2013 QCCA 367 (Justices Jacques A.
Léger, Jacques J. Lévesque and Dominique
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