On October 29, 2009, the Court of Appeal rendered a judgment in Hôtel Fairmount Inc. Société en commandite Manoir Richelieu vs. Schecter dealing with the duty to defend. The Court of Appeal concluded that although the insurer had a duty to defend the proceedings as instituted in first instance, it did not owe defense costs in appeal since it was clear that an exclusion applied.

In essence, the court of first instance concluded that Respondent was injured during a horseback riding excursion on Appellant’s property and that the injuries resulted from dangerous helicopter maneuvers which scared a horse. The helicopter pilot and Mr. Kevin Coutts were looking for a horse lost since the previous days. At the time of the excursion, Coutts was also responsible for the equestrian activities. The Superior Court concluded that Coutts was responsible for the faulty maneuvers in relation to the piloting of the plane in proximity to a group of debutants.

The Court of Appeal reviewed the facts and concluded that there were no manifest errors of fact allowing the Court of Appeal to intervene.

It then reviewed an exclusion clause contained in Lloyd’s insurance policy which excluded liability resulting from the use, by or on behalf of the insured, of an aeronef and concluded that the Superior Court had not erred in applying this clause.

The Court of Appeal was then called upon to address the issue of the duty to defend and the defense costs. The court analyzed the introductory motion and in particular, the paragraph in which it was alleged that Coutts was responsible for the damages caused by the horse. The Court of Appeal stated that although the introductory motion was drafted in such a way that it clearly focused on the use of the helicopter it could also lead one to conclude that the liability of Coutts could be engaged as a result of the horses for which he was responsible. As such, the Court of Appeal concluded that at that stage of the proceedings the Superior Court had not erred in concluding that Lloyd’s had the obligation to assume the defense of its insured.

The court however added that the situation was different in appeal. The allegation that the damages could be imputable to the animal became not only secondary but insignificant with respect to the entirety of the proof.

In the circumstances, the Court of Appeal concluded that Lloyd’s no longer had the obligation to defend its insured at the stage of the appeal. As such, Lloyd’s was only ordered to pay the defense costs incurred within the scope of the principal proceedings and not in appeal.