In the case of Pageau vs. Leblanc and Richard rendered by the Superior Court on November 21, 2008, the Court concluded that an insurer was well-founded in refusing to defend its insured in virtue of a liability policy given that the damages claimed related to latent defects affecting an immoveable sold, which were not covered.
In this case, Plaintiff instituted legal proceedings against the Defendants for latent defects affecting an immoveable purchased in 2004 and which Defendants had owned since 1990. The nature of the defects are not discussed at length however, they seem to be related to problems with mould. Defendants in turn instituted warranty proceedings against their liability insurers, on the risk from 1998 to 2004, requesting that the latter assume their defence and pay all indemnities resulting from a condemnation. Defendants also made a motion obliging the liability insurers to assume their defence. Plaintiff’s claim was in essence for urgent repairs, demolition costs, additional repairs, general damages and loss of rental revenues.
The Court underlined that the analysis in determining whether a duty to defend is owed in virtue of the policy implies steps which lead to four possibilities, namely
- After analyzing the policy the court may come to the conclusion that the claim resulting from the facts alleged, which, for purposes of the exercise, are taken as being true, is clearly covered;
- The Court will analyse the allegations by giving them the widest latitude possible and may conclude that there is clearly no coverage or that the claim is specifically excluded;
- If the exercise does not allow the judge to come to a conclusion either way, in other words, the claim may be covered but the contrary may also be true then, the insurer must defend given that the slightest possibility that the claim may be covered is sufficient to trigger the duty to defend;
- If the court concludes that the claim may only in part be covered then, the insurer has the obligation to defend the covered portion and the insured must look after the rest.
The Court then analyzed the insurance policy and concluded that in virtue of the policy, the loss must have occurred during the policy period; that “loss” is defined as being an event which causes material damages, bodily injuries or loss of enjoyment; and that the policy covers only compensatory damages.
The Court underlined that latent defects are not covered in virtue of Article 2465 C.C.Q. however, damages which result from an event related to the latent defect may be covered. In this case, the claim for urgent repairs, demolition costs and additional repairs were essentially costs to rectify the latent defects and did not result from a loss related to the latent defect. Consequently, this portion of the claim was excluded.
The claim for general damages was also excluded given that in matters of latent defects damages are only awarded when there is either knowledge or presumed knowledge of a latent defect. The proceedings specifically allege that Defendants could not ignore the defects and they had in fact attempted to camouflage them, adding that this constituted an intentional fault. Since, in virtue of article 2464 C.C.Q. intentional faults are never covered this portion of the claim was excluded.
As regards the claim for rental loss, the Court stated that this portion of the claim could only fall within the category of loss of enjoyment. The court however underlined that this portion of the claim did not result from a loss which occurred by reason of a latent defect or from an event causing damages which resulted from the latent defects rather, the claim for loss of revenue was exclusively inherent to the latent defect which did not constitute a loss and as such was not covered.