Canadian Underwriter

Liability insurers don’t always have to reimburse full defence costs: Quebec Court of Appeal

March 16, 2015   by Staff

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In some cases, only a portion of defence costs must be reimbursed by a liability insurer, the Quebec Court of Appeal ruled in January.

In October 2008, a real estate asset management company bought a building in Toronto that included an underground garage used by tenants. As per existing agreements with some tenants, the company gave notice to end their parking privileges so they could rent parking spots to their own tenants. The building’s condo board sued the company for breaching Toronto bylaws that forbade them from depriving the residents of the parking lot. The condo board also alleged the company breached their contract to abide by those bylaws. The company won the suit in the Ontario Superior Court of Justice but incurred $2.3 million in legal and expert fees. The company made a claim to their Quebec insurer, Northbridge, for that $2.3 million, which Northbridge rejected on the grounds that coverage wasn’t available for Ontario court cases. The company took Northbridge to court.

The Superior Court of Quebec rejected Northbridge’s grounds for exclusion, but noted the company had hired many lawyers and paralegals to “fast-track” the process. In the court’s view, this exceeded the requirements of an adequate defence, and it was unfair that Northbridge should take on the costs related to this “special agenda. The court ruled the insurers should reimburse 66 percent of the company’s legal fees.

Northbridge argued injunctions filed in Ontario weren’t covered by the insurance policy. But because the policy did include defence against damages and because the court ruled Northbridge hadn’t proven the motion for an injunction required tasks separate from the defense, the insurer still had to pay 66 percent of the company’s legal fees.

In January 2015, the Court of Appeal upheld the Superior Court’s decision. This moderates the scope of the insurer’s duty to defend, and extraneous factors can’t result in the insurer covering additional legal fees.

This story was originally published by Canadian Insurance Top Broker.