Executive Summary: Key Legal and Evidentiary Issues

• Ville de Gatineau sought a Wellington-type order compelling Lloyd's to assume its defence against a damages claim.
   
• Two Lloyd's policies were potentially engaged: the 2023 Policy and the 2024 Policy, each governed by separate wording.
   
• Underwriters for the 2023 Policy argued that only explicit notice of an intent to hold the City liable for a wrongful act could trigger the duty to defend.
   
• Quantified damages of $724,768.77 were added later by amendment to an application originally limited to quashing a municipal decision.
   
• Jurisprudence on claims-made policies, particularly the Lombard line of authority, guided the court's assessment of whether a notice of claim had been validly given.
   
• Ultimately, the court found a mere possibility of coverage under the 2023 Policy sufficient to trigger Lloyd's duty to defend, while it agreed the 2024 Policy was never triggered.
   

Facts of the case

The dispute arises from Ville de Gatineau's decision to revoke a municipal authorization and a building permit that had been issued for the renovation of a building at 1159 Jacques-Cartier Street. In response, 7555130 Canada Limited and Jason Wilson filed an application for judicial review seeking to quash that decision. In its original form, filed September 8, 2023, the application sought only the annulment of the City's decision, though it described various harms the plaintiffs said they were suffering or would suffer, including contractual defaults with subcontractors, frozen financing, and delayed deliveries of materials. On July 25, 2024, the plaintiffs amended the application to add an alternative claim for $724,768.77 in damages, sought only if the primary request to quash the decision failed.

The City held two claims-made liability policies with Lloyd's covering overlapping but distinct periods: the 2023 Policy (June 1 to November 1, 2023) and the 2024 Policy (November 1, 2023 to November 1, 2024). The City notified Lloyd's under the 2023 Policy of the original application on September 13, 2023, and notified the insurers under both the 2024 and 2023 Policies of the amended application in August 2024. Lloyd's denied coverage under the 2023 Policy in December 2024, and under the 2024 Policy in November 2025, prompting the City to bring this Wellington-type application in December 2025 to compel one insurer or the other to assume its defence.

Policy and legislative provisions at issue

The 2023 Policy covers sums the City becomes legally liable to pay arising from a claim made following negligence, under coverages for professional services, municipal services, and municipal administration, but only for claims made during the policy period and reported within sixty days of its expiry. It defines a "claim made" as including any notice from the insured concerning facts or circumstances that could give rise to a claim. Chapter III further requires that, if a third party gives written or oral notice of an intention to hold the insured liable for a wrongful act or omission, the insured must notify the insurer within twenty-one days, and any subsequent claim arising from that same act or omission is deemed made during the period in which that notice was given.

The 2024 Policy's relevant coverage arises under endorsement AE1, a claims-made-and-reported administrative errors-and-omissions endorsement, which covers claims first made against the insured and reported to the insurer, in writing, during the policy period. "Claim" is broadly defined to include actions, demands for monetary relief, and written allegations, while "Wrongful Act" covers faults, errors, omissions, negligence, misrepresentations, or breaches of duty in the exercise of the insured's functions.

The applicable legal framework is drawn from article 2503 of the Civil Code of Québec, governing an insurer's separate duty to defend, and from the jurisprudential "mere possibility of coverage" test set out by the Supreme Court in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, together with the Court of Appeal's four-outcome framework from Géodex inc. v. Zurich, compagnie d'assurances.

Reasoning and analysis

The court distinguished a Wellington application from the ordinary coverage analysis in Progressive Homes, since Lloyd's did not argue that the alleged facts fell outside an insured risk or were excluded — the sole issue was whether either policy had been triggered at all. Under the 2023 Policy, Lloyd's argued that only an explicit statement of intent to hold the City liable for a wrongful act or omission could constitute notice. The court rejected this narrow reading, finding that the original application's allegations of harm — though unquantified at the time — were specific enough, including supporting invoices, to convey the plaintiffs' intent to hold the City responsible. Reasoning by analogy to Lombard du Canada ltée v. Mont-Tremblant (Ville de), where a by-law annulment application lacking any damages claim was still found sufficient to trigger a similarly worded policy, the court held that the City's 2023 notice met the threshold for a claim made. It further found that the later amendment quantifying damages was not a new claim but the natural continuation of harms already alleged in 2023, and that Lloyd's own correspondence — describing the notice as a "potential" claim — supported this conclusion. Under the mere-possibility standard, this was enough to trigger Lloyd's duty to defend under the 2023 Policy.

By contrast, the 2024 Policy's endorsement AE1 covers only claims first made during its own coverage period, beginning November 1, 2023. Since the underlying claim was first made in September 2023 — before that period began — and the July 2024 amendment was not a new claim, the court agreed with Lloyd's that the 2024 Policy was never triggered.

Ruling and overall outcome

The court ruled in favour of Ville de Gatineau, ordering Lloyd's under the 2023 Policy (policy no. 10116POL) to take up the City's cause, assuming its full defence and associated legal fees and professional costs in the underlying damages proceeding, along with legal costs of this application. On the 2024 Policy (policy no. PBL00351), the court's reasoning confirmed Lloyd's position that this policy had not been triggered, though the formal order addresses only the 2023 Policy. No monetary damages award was made in this judgment itself, as the proceeding concerned only the duty to defend; the parties indicated they would separately address costs already incurred.