The Decision

In a rare case departing from Progressive Homes[1], the Superior Court, per the Honourable Bernard Larocque, J.S.C.[1], dismissed a Wellington-type Motion and confirmed that a claim grounded on latent defects does not automatically trigger a civil liability insurer’s duty to defend. Indeed, absent damages resulting from an “occurrence” within the meaning of the insurance policy, the insurer is under no obligation to assume the defence of its insureds.

The Facts

The plaintiffs purchased a residence in June 2017 and subsequently instituted proceedings against the vendors — the insureds in the present matter — claiming the sum of $322,997.03.

The purchasers alleged that, at the time of the sale, the residence was affected by significant latent defects, including water infiltration, mould contamination and issues affecting the concrete slab. The plaintiffs further alleged that these defects were known to the defendants, who failed to disclose them. The purchasers also alleged that the defects had been concealed, amounting to fraud vitiating their consent to the purchase.

The substance of the claim concerned the cost of corrective work, together with ancillary damages, including compensation for trouble and inconvenience arising from the defendants’ alleged fraud.

Faced with the action, the vendors turned to their civil liability insurer and sought a Court order compelling the insurer to immediately assume their defence. The insurer denied coverage, arguing that the claim did not seek compensation for damages arising from an occurrence, but rather the correction of defects falling outside the coverage afforded under the policy.

The Court reiterated that the duty to defend, which is distinct from the duty to indemnify, arises where there is a mere possibility of coverage, assessed in light of the allegations assumed to be true and having regard to the true nature of the proceedings.

In the present case, the central issue concerned the characterization of the damages being claimed. According to the expert report, the claim was directed at correcting the defects affecting the immovable, through work intended to restore the property to the condition in which it should have been at the time of sale. The expert evidence also established that the situation remained unchanged before and after the purchase of the immovable, such that no new damage occurred subsequent to the transaction.

Furthermore, the damages claimed on the basis of fraud were characterized as flowing from an intentional fault. An insurer is never bound to indemnify prejudice resulting from such intentional fault[2].

The Court therefore concluded that there was no possibility of coverage and, consequently, that the duty to defend was not triggered. The Wellington Motion was dismissed.

Key Takeaways

This decision clearly reiterates the fundamental distinction between a claim based on the legal warranty of quality and a claim arising from an event covered under a civil liability insurance policy. Put simply, the mere fact that proceedings allege “damages” is insufficient to trigger the duty to defend; those damages must result from an occurrence, as per policy definition, or distinct event causing prejudice.

The courts will look to the true nature of the claim rather than its formal characterization. Where the action essentially seeks to correct a defect or rebalance the transaction between the parties, coverage is not triggered and exclusions apply.

Civil liability insurers are increasingly being called upon to defend insureds against latent defect claims. This decision provides a useful precedent for challenging the existence of a possibility of coverage and for refusing to assume the insured’s defence.

[1] Progressive Homes Ltd. v. Cie canadienne d’assurances générales Lombard, 2010 CSC 33.

[1] Daquino c. Barrette, 2026 QCCS 1478

[2] Article 2464 of the Code civil du Québec