Liability insurance and defending the insured in the Courts of Quebec

Under the Civil Code of Québec, a liability insurer is required to perform two distinct yet related contractual obligations: 1. It must take up the defence of any insured who is entitled to coverage and 2) It must indemnify the third party plaintiff of any damages that the insured may be compelled to pay, pursuant to a settlement or a judgment.  

Section 2503 of the Civil Code of Québec provides that the “liability insurer is bound to take up the interest of any person entitled to the benefit of insurance and to assume the insured’s defence in any action brought against him.” This obligation is imperative and cannot be abrogated by contract.  

Generally, the duty to defend will be determined on a preliminary motion by the insured seeking an order compelling the insurer to defend the underlying claim. In the courts of the province of Quebec, this type of motion is referred to as a “Wellington Motion.”  

It is now well established that a liability insurer is required to defend the claim where the facts alleged in the pleadings — if proven to be true — would require the insurer to indemnify the third party for damages claimed against the insured. It is irrelevant whether the allegations in the pleadings can be proven in evidence. What is required is that the insured establishes a mere possibility that a claim falls within the insurance policy.  

How can the insured meet this burden of proof? In other words, what evidence is admissible on a Wellington Motion? 

The duty to defend is essentially determined based on the true nature of the factual allegations made by the plaintiff against the insured and the exhibits considering the terms of the insurance policy. The court will not generally consider extrinsic testimonials or documentary evidence that has not been alleged or referred to in the pleadings. This is commonly referred to as the pleadings rule.  

The pleadings rule was adopted by the Supreme Court of Canada in Monenco Ltd. v. Commonwealth Insurance Co. Its objective is to streamline the pretrial debate on the insurer’s duty to defend and to avoid what the court termed “a trial within a trial,” which would risk raising “premature” evidence that would require findings of fact affecting the underlying litigation. 

Thus, the parties will not be allowed to rely on evidence that has not been alleged in the underlying action. For example, written or sworn statements by the insured, the insured’s plea, the results of the insurer’s independent investigation into the insured’s liability or any evidence that tends to prove or disprove the truth of the plaintiff’s allegations against the insured are not admissible on a Wellington Motion. Monenco hinted that “non-premature” extrinsic evidence might be admitted but expressly declined to specify what such evidence might be. Imaginative counsel have pushed the courts ever since to broaden the pleadings rule when it was in their client’s interest to do so.  

Recent cases, while keeping the debate on the duty to defend within strict boundaries, have allowed the parties to adduce some extrinsic evidence if this can be done summarily and if the evidence has no bearing on the trial in the underlying action. For example, an insurer may be allowed to prove that it did not receive notice of an insurance claim or that a material fact was not disclosed by the insured. 

In summary, the insurer’s duty to defend is essentially decided on the face of the pleadings and the exhibits. The court will not allow the hearing of a Wellington Motion to become a “trial within a trial.” Any extrinsic evidence allowed by the court must be limited in scope and must not pre-judge the case in the underlying action.