Executive Summary: Key Legal and Evidentiary Issues

• Scope of an insurer’s duty to defend under article 2503 C.c.Q. in a “Wellington” application arising from major construction defects in a condominium building.
• Characterisation of the underlying claim as one for construction defects and design faults, not a classic vice caché/latent defect action tied to the seller’s warranty of quality.
• Interpretation of “dommages matériels” and “sinistre/accident” under a commercial general liability policy, including whether progressive water infiltration and structural degradation qualify as covered property damage.
• Temporal trigger issues: whether gradual damages from condensation, humidity and water ingress may have begun during the 2012–2018 coverage period despite discovery only in 2022.
• Application and limits of key exclusions, including “vos travaux” and “Produits/Après travaux,” as well as the fungi/spores exclusion, in relation to consequential damage versus mere correction of defective work.
• Entitlement of the insured to reimbursement of legal fees and expert costs incurred to compel the insurer’s defence, in addition to ordinary court costs, once the duty to defend is found to arise.

Facts and procedural background

The dispute stems from serious construction problems affecting a 13-unit predominantly residential condominium building at 6370 rue Garnier in Montréal. The Syndicat des copropriétaires du 6370 rue Garnier (the Syndicate) alleges numerous vices de conception et de construction, as well as various deficiencies and malfaçons, particularly involving the roof, façade, waterproofing, insulation and structural elements of the building. The construction was completed in 2014, but material damage was first discovered in July 2022, when a significant water infiltration occurred in the attic space of one of the units. Following investigations, the Syndicate claims that vices in design and construction allowed chronic condensation, humidity and water ingress to progressively damage the building envelope and structure. In March 2024, the Syndicate instituted proceedings in the Superior Court of Québec against several defendants, including Développement G.R. Inc. (DGR) and Groupe Julmat Inc. as promoters and general contractors, the project architect and the roofing subcontractor. In February 2025, the action was amended to add the structural engineer and to increase the total amount claimed to $1.6 million. The Syndicate alleges that DGR and Julmat acted jointly as entrepreneurs généraux and promoters, participated indistinctly in carrying out and supervising the works, and are solidarily liable for all damages stemming from their gross negligence in executing the construction works. Expert reports filed by the Syndicate describe significant deficiencies and pathologies in the building envelope, documented between 2022 and 2024, and they link these to construction work that failed to respect the plans and specifications. The reports note progressive deterioration of structural components (including rotting wood, weakened joists and loss of material), infiltration of water, chronic condensation and excessive humidity within the roof assembly and walls.

The insurance policy and coverage dispute

At the relevant time, DGR was insured under a commercial general liability policy issued by Compagnie d’assurance Definity (Definity) for the period from 9 August 2012 to 26 March 2018. The policy (Guarantee A) provides coverage for the insured’s civil liability for property damage and loss of use suffered by third parties, provided that the “dommage matériel” occurs during the term of the policy and results from a covered “sinistre.” “Dommage matériel” is defined as any deterioration or destruction of tangible property, and “sinistre” is defined as any accident or continuous or repeated exposure to substantially the same harmful conditions, reflecting the broad notion of accident adopted by the Supreme Court of Canada. After being put on notice of the Syndicate’s action, Definity issued a coverage denial in May 2024. It advanced three main grounds: first, that the vast majority of the claimed amounts related to pure malfaçons, i.e., the cost of correcting defective work, which it said were not insured; second, that the material damage occurred after the policy period, given that the first manifestation of damage alleged was in July 2022; and third, that policy exclusions applied, specifically the “Produits/Après travaux” risk and a broad exclusion for contamination by fungi and spores. DGR responded by filing a Wellington-type application under article 2503 C.c.Q. in July 2025, seeking an order compelling Definity to take up its defence in the main construction action and to reimburse the costs it had incurred in pursuing the coverage motion.

Nature of the underlying claim

A central issue was how to characterise the Syndicate’s underlying claim. Definity attempted to frame it as a vice caché (latent defect) action engaging the seller’s warranty of quality, an area where liability policies more often do not respond. The Court, after reviewing the amended originating application and supporting materials, concluded instead that the claim is properly one for vices de conception, vices de construction, deficiencies and malfaçons, coupled with consequential damage. The Syndicate seeks to be indemnified for damages caused by design and construction faults and by defective execution of the works, not for a reduction or resolution of the sale price as in a classic vice caché action. The claim includes costs of urgent and provisional works to address water infiltration and prevent further degradation, costs of investigations and expert reports, works to repair and stabilise the façade and parapets, works to address thermal insulation and air barrier failures, and an estimate for future roofing work. The Court emphasised that the presence of the expression “vice caché” in a few allegations or in pre-litigation demand letters does not change the true nature of the proceeding. Nor does the policy denial letter itself rely on the warranty of quality or on a vice caché analysis. The Court therefore treated the action as a construction-defect case, aligning it with the body of jurisprudence that examines how CGL policies respond to vices de construction and their consequences.

Assessment of initial coverage: material damage and accident/sinistre

The next step in the Court’s analysis was to determine whether the allegations disclosed a simple possibility of coverage under the policy, thereby triggering Definity’s duty to defend. Relying on Progressive Homes and subsequent authorities, the Court reiterated that a faulty design or defective construction can amount to “dommage matériel” caused by an “accident” or “sinistre” within a CGL policy, provided the damage is neither intended nor expected by the insured. The Court underscored that earlier case law to the contrary must be read cautiously in light of this modern, broader interpretation. Definity argued that the claim was essentially for the cost of re-doing defective work, but the Court found that the pleadings and expert evidence alleged far more: water infiltration; degradation and loss of structural components; chronic condensation and humidity leading to rot, sagging ceilings and compromised structural members; and the need for “travaux incidents” inside units—such as removing brick, gypsum and insulation, exposing and replacing framing, and opening non-defective areas—in order to repair damaged components. These allegations, on their face, support the existence of consequential property damage distinct from the mere correction of non-compliant work. The Court pointed to specific cost items claimed by the Syndicate—urgent temporary works following water infiltration, design of a new roof system, works undertaken and then suspended when further defects were discovered, and stabilisation of the façade and parapets—to illustrate that at least a significant portion of the claimed sums may relate to consequential damage and protective or stabilising measures, not solely to the definitive replacement of defective construction. The Court also noted that some claimed works and future estimates could not at this stage be neatly separated into categories of excluded rectification of malfaçons versus potentially covered consequential losses. In light of the broad duty-to-defend standard, it sufficed that there was a simple possibility that at least part of the claimed damages fell within the basic grant of coverage.

Temporal issues: when did the damage occur?

Definity’s second major argument was that all “dommages matériels” alleged arose only after the policy expired in March 2018, since the first reported problem is a July 2022 water infiltration. The policy, however, is written on an occurrence basis and requires that the damage occur during the term of the contract; it does not require that the damage be discovered or denounced during that period. The Court distinguished between the occurrence of damage and its manifestation to the insured or the Syndicate. Drawing from the pleadings and expert reports, the Court found it plausible that the building had been subjected since completion to cyclical condensation and humidity, seasonal exposure and progressive degradation. The experts describe moisture-laden insulation, high moisture content in building elements, cernes d’eau, rotting or heavily deteriorated joists and panels, and extensive structural damage attributable to long-standing humidity and water exposure, all of which are consistent with a progressive process that may have begun shortly after construction in 2014 and continued over several years. On that basis, the Court held that there is a simple possibility that at least some of the material damage occurred, or began to occur gradually, between 2014 and March 2018, within Definity’s coverage period. Questions as to precisely when particular elements failed or when specific components lost their structural capacity are evidentiary matters reserved for the trial on the merits. For the purposes of a Wellington motion, it was enough that the alleged progressive, hidden damage could reasonably have started while the policy was in force, even if it was not detected until 2022.

Policy exclusions: “vos travaux”, “Produits/Après travaux” and fungi/spores

Definity also relied on several exclusions, arguing they clearly removed all relevant damages from coverage. First, it invoked exclusions relating to “vos travaux” and “Produits/Après travaux.” These provisions generally exclude the cost of repairing or replacing the insured’s own defective work, especially after completion of the project. The policy defines “vos travaux” broadly to include work performed by or for the insured, along with associated materials and undertakings as to quality, and contains exclusions for deterioration or destruction of such work when the damage results from the work itself or from defects, dangers or non-conformity to its intended use. However, another clause excludes deterioration or destruction of any part of property that must be repaired or replaced due to poor execution of “vos travaux,” but expressly states that this exclusion does not apply in relation to the “Produits/Après travaux” risk. DGR argued that this interaction could, in effect, narrow or offset the broader “vos travaux” exclusion by preserving coverage once the project is completed and damage occurs. The Court refrained from definitively resolving this interpretive issue at the Wellington stage, noting that exclusions can sometimes, in their operation, extend rather than restrict coverage, depending on how they interrelate. Applying the principle that coverage grants are interpreted broadly in favour of the insured and exclusions restrictively, the Court found that Definity had not demonstrated that the “vos travaux” and “Produits/Après travaux” exclusions clearly and unequivocally removed all the alleged damages from coverage. In line with Progressive Homes and other Canadian authorities, the Court held that such exclusions are aimed at the cost of redoing the insured’s defective work itself, not at consequential damage to other property or to other parts of the work. Given the strong evidence of consequential decay and structural damage, as well as the presence of “travaux incidents” that damage otherwise non-defective areas in order to access and repair compromised components, the Court concluded there remained at least a possibility that these heads of damage fell outside the exclusions and within the policy’s coverage. Second, Definity relied on a fungi and spores exclusion that removes coverage for costs incurred to prevent, monitor, clean up, remediate or otherwise deal with mould or spores. While acknowledging that any strictly fungicidal remediation costs would likely be excluded, the Court observed that the Syndicate’s claim does not primarily target decontamination or specialised fungal clean-up. Only a very small specific sum is clearly earmarked for mould-related work, and there is no microbiologist’s report in the record. Many damaged areas show structural decay without fungal colonisation, and the majority of the recommended works aim to restore structural capacity and correct deterioration caused by moisture and condensation, independent of any mould. At this stage, it was impossible to say that all relevant damages fell within the fungi/spores exclusion.

The duty to defend and allocation of legal costs

In a Wellington-type application under article 2503 C.c.Q., the threshold question is whether the pleadings disclose a simple possibility that the claim, or part of it, falls within the policy’s initial coverage, and whether the insurer can clearly and unequivocally bring the case within an exclusion. If the claim might be covered, but the opposite is also possible, the insurer must defend its insured while the coverage dispute is ultimately resolved. In this case, the Court held that the Syndicate’s claim, when read broadly and realistically, alleges progressive, unintended material damage to the condominium building that could have begun within the 2012–2018 coverage period and that goes beyond merely re-doing defective work. The policy language on “dommage matériel” and “sinistre/accident,” interpreted in line with Progressive Homes, comfortably encompasses such allegations at the duty-to-defend stage. Definity failed to show that the “vos travaux,” “Produits/Après travaux” or fungi/spores exclusions clearly eliminate all of these potential damages from coverage; at most, they may ultimately remove some components of the claim once the evidence is fully heard. Consequently, the Court ordered Definity to assume DGR’s defence in the main construction action and to reimburse all legal fees and expenses DGR had incurred in prosecuting the Wellington motion, including expert fees where applicable, in addition to ordinary court costs. The decision identifies Développement G.R. Inc. as the successful party, with Compagnie d’assurance Definity bearing the financial consequences of the coverage dispute. The judgment notes that DGR’s legal fees for the motion were estimated at about $20,000 but does not fix an exact sum, and the total quantum of fees, expenses and court costs ultimately payable in DGR’s favour cannot be precisely determined from the judgment.