DANGER for Insurers Who Contest a Wellington Motion Alleging a Breach of Formal Warranty

By Patrick Henry, from our Insurance Law Practice Group

February 7, 2020 — When a Wellington Motion is presented by an insured in the course of proceedings, it seeks an order forcing an insurer to assume its defence without having to await the final decision on the merits of the case. It is analogous to an injunction in the course of proceedings. The consequence for an insurer of losing this type of motion is to force the insurer to assume the defence of the insured at its expense through its own attorneys. However, in cases where the insurer does not raise the interpretation of the policy in relation to the allegations of the lawsuit but rather the violation of a formal warranty, there is a real additional danger for the insurer who contests.

This is what an insurer learned at its expense in the recent judgment rendered in Promutuel, Vallée du Saint Laurent, société mutuelle d’assurances générales c. Couvreurs Dubuc inc., 2020 QCCS 122. The Court of Appeal had already concluded in 2010, on a Motion for Leave to Appeal in the case of Lloyd’s of London Canada c. Entreprises de rénovations Pareco inc., 2010 QCCA 1613 that an insurer could not succeed in contesting a Wellington Motion by invoking, without having proven it yet, the breach of a formal warranty in relation to welding work and the requirements of the warranty.

In the Promutuel decision which was recently rendered by the Superior Court, Lloyd’s argued that during the repair work of the building, an employee of Dubuc (the insured) left the premises without surveilling or controlling the temperature of the roof thus violating a formal warranty. A fire broke out and after Promutuel indemnified its insureds and was duly subrogated into their rights, it instituted proceedings against Dubuc and Lloyd’s. Dubuc presented a Wellington Motion to force Lloyd’s to assume its defence. Up to that point, there is nothing unusual.

Justice Vaillancourt was of the view that the insurer’s contestation could not succeed, not only because proof was required to establish whether or not there had been a breach of a formal warranty but that, furthermore, Lloyd’s prematurely concluded even before introduction of the legal proceedings by Promutuel that Dubuc had not respected the formal warranty. The judge was of the view that the decision of Lloyd’s did not flow from its analysis of the allegations of the Introductory Motion but rather of its own investigation and that it represented the opinion of its representatives with respect to the conduct of Dubuc.

Given the above, Dubuc pleaded that it had lost faith in its insurers who had already determined that the workers had contravened the formal warranty.

As a result, the Superior Court was called upon to apply a drastic and exceptional sanction depriving the insurer of its fundamental right to retain attorneys of its choice to take control of the defence. Consequently, the judgment ordered that Lloyd’s assume the defence of its insured, Dubuc, and that furthermore, Dubuc be permitted to retain its own attorneys at the expense of Lloyd’s not only up to the final judgment but also reimburse all expenses incurred since the beginning of the debate including the expert fees.

As a consequence, certain lessons must be learned from this decision to avoid the application of the ultimate sanction to lose the right to appoint one’s own defence attorneys.

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