Builder’s Risk policies in Quebec: No duty to defend

Quebec has come to be well known in the industry for the strict legal obligations it places on insurers regarding the duty to defend, pursuant to the Civil Code of Quebec (“C.c.Q.”). In a recent Superior Court case, Bridor inc. v. 90784497 Québec inc. (2022 QCCS 2496 (CanLII)), the Court examined the true nature of a Builder’s Risk policy in order to determine whether the insurer should be forced to defend. The Court ruled that the mandatory duty to defend does not apply to a Builder’s Risk policy seeing as it is “property insurance” rather than “liability insurance.”

Bridor inc. (“Bridor”) retained Mikado Construction (“Mikado”) to supervise expansion work at one of its plants. Bridor eventually filed an action against Mikado for damages to composite wall panels.

Mikado brought a “Wellington” type action against Starr Insurance & Reinsurance (“Starr”), the insurer with whom Mikado held its Builder’s Risk policy, seeking an order that Starr be compelled to defend.

Seeing as the alleged damages to the composite wall panels were potentially indemnifiable under the Builder’s Risk policy, Mikado’s contention was that Starr was obligated to defend Mikado in Bridor’s action.

The Court disagreed. For Mikado’s logic to stand, there must be a duty to defend provided either in the policy or the law.

The C.c.Q.’s section on damage insurance contains two sub-sections: liability insurance and property insurance. The article stipulating the insurer’s obligation to defend, article 2503 C.c.Q., falls under the liability insurance section. Consequently, the Court concluded that this obligation to defend is only applicable in cases of liability insurance, and does not extend to property insurance.

The Court then considered where a Builder’s Risk policy falls? This type of policy is used in the construction industry and aims to avoid situations where parties working on a same construction project sue each other mutually over the same loss, thus blocking rapid reconstruction. The Court concluded that a Builder’s Risk policy is meant to be used as property insurance.

Seeing as there was no duty to defend per the C.c.Q., and no duty to defend was provided for in the Builder’s Risk policy, Mikado’s action was dismissed.

While the duty to defend under Quebec law can often seem stringent to Underwriters, this decision confirms that Builder’s Risk policies are an area where an insurer is not compelled to defend if the obligation is not expressly provided for in the policy.