‘Professional activities’ exclusions: Why insurers must almost always defend

Quebec’s Superior Court notes an insurer will almost always have a duty to defend an insured in disputes over policy exclusions for “professional activities.”

“A review of the case law dealing with exclusion for ‘professional activities’ reveals that, in almost all cases, the decision on the application of the exclusion required proof on the merits,” Quebec Superior Court ruled Apr. 7 in La Personelle, assurances généraux inc. c. Lalonde. “The judgments submitted by the parties, which rule on Wellington-type motions, have all ordered the insurer to defend.”

A “Wellington-type” motion asks for a court to require an insurer to defend its insured.

In this case, Traders General Insurance Company claimed it had no duty to defend Francoise Lalonde, since damage caused by an exploded battery were excluded by his insurance policy. The insurer argued the loss happened in the context of the insured’s “professional activities,” as someone who reconditions discontinued electric batteries for small tools and bicycles.

In July 2018, Luc Gagné, insured by The Personal, asked Lalonde to recondition an electric bike battery. Gagné got his battery back from Lalonde on Aug. 5, 2018 and found it didn’t work. He returned the defective battery to Lalonde, who replaced it with another.

When he returned home, Gagné placed the battery on his charger. At 5:30 p.m. on Aug. 7, 2018, the battery exploded, causing a fire and damage to Gagné’s building. After compensating Gagné, The Personal sued Lalonde and his liability insurer Traders to recover the damages.

Traders refused to defend Lalonde, citing a policy exclusion for damage caused by “professional activities.” Lalonde claimed battery reconditioning was his “hobby,” and not a “professional activity.”

In ordering Traders to defend Lalonde, the Quebec court noted the duty to defend an insured is broader than just determining whether or not the exclusion applies.

“The obligation to defend does not depend on whether the insured is actually liable or whether the insurer is actually required to compensate him,” the Quebec Superior Court ruled, citing a 2010 judgment from the Supreme Court of Canada in Progressive Homes v. Lombard. “The mere possibility that a claim under the policy can be upheld is sufficient.”

To determine whether the exclusion applies, a trial is required, the Quebec court found, and Traders will have to defend Lalonde.

“It follows from the definition of ‘professional activity’ set out in the policy that, in order to successfully invoke exclusion, Traders will have to prove that the activity of his insured, which consists in reconditioning electric bicycle batteries: (1) ‘is subject to remuneration;’ and (2) ‘is exercised on a continuous or regular basis,’” the Quebec Superior Court ruled. “These questions are inherently factual. The Personal’s application instituting proceedings [to invoke Traders’ duty to defend] does not resolve them.”

Feature image courtesy of iStock.com/Roman Mykhalchuk