Complaint to your liability insurers in the event of legal proceedings: a good decision?

The idea that we must avoid making a claim to our insurers at all costs under the pretext that our insurance premium will increase is a persistent myth that it would be profitable to deconstruct.

When a contractor is sued by a former customer for alleged deficiencies, construction defects or poor workmanship, he generally has every advantage in contacting his insurer quickly.

Should we avoid at all costs making a claim to our insurers under the pretext that our insurance premium will increase?

The answer is no, because that way you could save thousands or even tens of thousands of dollars.

Obligation to defend

The simple possibility that the lawsuit brought against the contractor falls under his insurance policy results in the obligation for the insurer to “take sides” for his insured and to assume all the costs of his defense.¹ In other words, if you are covered, the insurer will pay the legal fees and expert fees that result from the lawsuit against you.

If part of the claim brought against the contractor clearly does not fall under insurance coverage, the insurer will still have an obligation to defend the contractor for the aspects covered. In this case, the entrepreneur could therefore be defended both by a lawyer appointed by him himself and by a lawyer appointed by the insurer. It is also possible that several insurers share the costs of defending the entrepreneur, if he was covered by several policies for the relevant period.

If there are gray areas in the exclusion clauses in the insurance policy and it is impossible, at an early stage, to determine if the claim is covered, the insurer will still have an obligation to defend you.²

When the insurer unfairly refuses to assume its obligation, its insured can apply to the Court in order to force him to “take sides”.

It should be understood that the duty to defend is broader in scope than the obligation to indemnify.³

However, a regulation that came into force in 2021⁴ now allows the insurer to derogate from its obligation to defend against certain categories of insured persons.

Fortunately, the residential construction industry was not too affected by this new regulation.

With few exceptions⁵, your insurer still has the obligation to assume your defense in the event of a lawsuit against you, so take advantage of it and file a claim.

1 Article 2503 of the Civil Code of Quebec RLRQ, c. C-1991; Progressive Homes Ltd. v. Lombard General Insurance Co. Canada,
2010 SCC 33; Ledcor Construction Ltd. v. Northbridge Insurance Indemnity Corporation, 2016 SCC 37.
2 Geodex Inc. v. Zurich Insurance Company of Canada, 2006 QCCA 558; Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 S.C.S. 699; Rioux v. Constructions Marc Beaulieu Inc., 2006 QCCA 558; Rioux v. Constructions Marc Beaulieu Inc. 2021 QCCS 5211.
3 Nichols v. American Home Assurance Co, [1990] 1 S.C.R. 801.
4 Regulation on the categories of insurance contracts and insured persons that may derogate from the rules of articles 2500 and 2503 of the Civil Code of Quebec RLRQ, c. C-1991.
5 For example, being a large company within the meaning of the Sales Tax Act, a publicly traded company or a foreign company AND having subscribed to one or more insurance contracts offering total coverage equal to or greater than $5,000,000, see section 2 of the Regulation respecting the categories of insurance contracts and insured persons that may derogate from the rules of sections 2500 and
2503 of the Civil Code of Quebec RLRQ, c. C-1991.

‍

Consult the source publication