Schrager, Gagné, Moore

Appeal from a judgment of the Superior Court granting a Wellington motion. Dismissed.

The impleaded party instituted an action against the respondents-insured, claiming that they cut trees, changed the slope of the land, and built a retaining wall on his property. He seeks compensatory and punitive damages pursuant to the Tree Protection Act (CQLR, c. P-37), as well as permanent injunctive conclusions. The appellant insurance company agreed to defend its insureds on the claim for compensatory damages, but not on the injunction or the claim for punitive damages.

The duty to defend, set out in art. 2503 of the Civil Code of Québec (S.Q. 1991, c. 64) , which is of public order, is triggered as soon as there is a possibility that the insured will be required to indemnify the insured, based on the true nature of the application, which is determined by a reasonable interpretation of the allegations.

In this case, the appellant distorted the trial judgment when it argued that the judge concluded that the application for an injunction constituted an action for compensatory damages. He instead stated that [translation] “it is not unreasonable to conclude” or that [translation] “it is possible” that the nature of the dispute is the compensation of a material damage. This is indeed the test that he had to apply.

Moreover, the injunction is aimed at enforcing an obligation to compensate a past injury with the same constituent facts as the claim for compensatory damages and will not require any particular defence. The true nature of the proceeding cannot rely solely on the procedural manner of execution. The impleaded party could have had the work assessed and claimed the cost to perform the repairs, or to have them performed, as it did for the cost of replacing the trees, for which the insurer does not contest coverage. The fact that the impleaded party proceeded by way of injunction therefore does not change the true nature of the dispute, which is the compensation of a material injury allegedly caused by the insured.

The insurance policy expressly excludes punitive damages. In insurance liability matters, however, the duty to defend may impose an exception to the principle that a party can only be represented by a single counsel. In this respect, the judge must consider several factors, including whether there is a single set of underlying facts, the importance, relationship, and complexity of the issue not covered, the need for that issue to have its own evidence, the proportion of the dispute that will bear on the issue not covered, or the risk of a conflict of interest, the whole based on the guiding principles of procedural law. There is no question of creating a new duty for the insurer, or of extending the scope of article 2503 C.C.Q. based on the procedural principle of proportionality, which cannot be done, but of adapting its application, to everyone’s benefit.

In this case, the judge noted that the alleged facts that were covered and those that were not raised the same issues and required the same evidence. Moreover, the claim for punitive damages is of marginal significance relative to the file as a whole and does not raise a complex issue or require specific evidence. In light of all the circumstances, the judge was therefore correct in applying the principle of proportionality and of representation by just one counsel and ordering that the lawyer mandated by the insurer be responsible for defending the punitive damages claim, given that, at the end of the file, costs may be shared.

Text of the decision: http://citoyens.soquij.qc.ca