In Intact Compagnie d’assurance v. Lavoie, the Court of Appeal of Quebec ruled that an insured who was already being completely defended by several of its liability insurers lacked the legal interest to compel another of its insurers to contribute to defence costs. The decision stands for the proposition that an insurer cannot use the insured as an “instrument” to compel another insurer to defend the insured where the insured has no direct and personal interest in the outcome of the application. Rather, an interim or final cost-sharing agreement between the insurers, or a separate demand or application for declaratory judgment may be the more appropriate way to deal with the dispute.
Background
The insured, Réal Lavoie, is the founder of “Famille Marie-Jeunesse” (FMJ), and a defendant in a class action filed by former members of the FMJ alleging physical, psychological, and spiritual abuse over 40 years.
Various insurers had covered FMJ’s civil liability during this period. While some insurers accepted to defend Lavoie, Intact Insurance acknowledged its duty to defend in respect of FMJ, but denied coverage of Lavoie, based on the intentional acts exclusion set out in its policy, arguing that the alleged abuse was inherently harmful, and therefore, intentional.
The Decision in First Instance
As reported in one of our past Bulletins, the Superior Court of Quebec had allowed Lavoie’s motion to compel Intact to defend it (the Wellington Motion) thereby requiring Intact to contribute to the defence costs of the insured.
The Superior Court had determined that there was a possibility of liability in the absence of an intentional fault which was potentially covered under Intact’s policy, such that Intact’s duty to defend was triggered.
The Superior Court had also rejected Intact’s argument that it should be allowed to appoint new defence counsel if required to defend the insured. Intact had argued that the acting defence attorneys, who were retained and instructed by the insurers who had accepted defence, had placed themselves in a conflict of interest by acting against Intact’s interests in the scope of the Wellington Motion.
Intact appealed this decision.
The Court of Appeal’s Decision
The Court of Appeal overturned the Superior Court’s decision, ruling that Lavoie did not have the required legal interest to file a Wellington Motion against Intact, as required under article 85 of the Quebec Code of Civil Procedure.
The Court found that given that Lavoie’s defense was already fully covered by other insurers, at no personal cost, he no longer had any personal or direct interest in compelling Intact to share the defense costs.
The Wellington Motion was deemed to be an attempt by other insurers to involve Intact for financial reasons and the incorrect procedural vehicle for resolving any issue of contribution and allocation of defence costs between the insurers.
The Court of Appeal described the types of procedural vehicles available to insurers to resolve the claims for contribution to defence costs between them.
The Court indicates that such recourses may be exercised as soon as the first defence costs are paid out.
Based on the lack of personal interest of the Insured alone, Intact’s appeal was allowed. It was therefore not necessary for the Court to pronounce on some of the other interesting coverage issues that had been raised, including whether or not Intact did in fact have a duty to defend, or, if such a duty did exist, on the right of Intact to select new defence counsel given that acting defence counsel had acted against the interests of Intact on the Wellington Motion.
Take aways
This judgment provides useful guidance to insurers and insureds on how to exercise their rights and recourses where multiple insurers potentially have a duty to defend the insured.
As such, the litigation between the insured and opposing parties may not be the appropriate forum to debate issues between the insurers involved. Rather, a cost-sharing arrangement or separate claim for the reimbursement of defence costs or application for declaratory judgment, should be considered.
It remains however that each case must be examined on its particular facts and merits. In this instance, some of the key considerations which led to the Court to conclude that the insured lacked the personal interest to seek to compel Intact to perform its duty to defend included that:
- The insured was not personally incurring or facing any defence costs;
- There was nothing to indicate that the facts relating to Intact’s policy period would necessitate further defence efforts (costs) in addition to those already being covered by the other insurers;
- No reservation of rights had been issued by the other insurers (such that there was no risk that any part of the defence costs would not be covered);
- The insured did not stand to benefit in any way if the Wellington Motion were to succeed;
- The Motion was strictly for the benefit of the other insurers.
This suggests that cases in which the insured retains a personal interest in obtaining the participation of an insurer in its defence, such as where it may be required to personally assume the part of defence costs not covered by other insurers, may justify a different approach than that taken by the Court of Appeal in this instance.
