When a fire strikes an older building, restoring the property and rebuilding it in accordance with new building standards poses a challenge for all parties involved. A lengthy judgment handed down by the Superior Court of Quebec in a dispute arising from a major fire in Old Quebec illustrates the complexity of such an insurance claim.

The court ruled on two proceedings in the dispute between Clarendon Hôtel and four insurance companies: Intact Insurance Company, Northbridge General Insurance Corporation, Definity Insurance Company and Tokio Marine & Nichido Fire Insurance Co., Ltd. The trial took place from October 6 to November 27, 2025, before continuing on March 30 and April 1, 2026.

In a highly detailed judgment handed down on September 16, 2026 and available only in French, Justice Marie Cossette partially granted the respective claims of the insured and the insurers and adjusted the amounts claimed by the parties.

The fire occurred on January 23, 2019, causing significant damage and forcing the hotel to close for nearly a year. The insurers subsequently paid $21.08 million, broken down as follows:

• $14.07 million for the building;

• $1.22 million for contents;

• $5.44 million for business interruption;

• $50,000 for additional expenses;

• $292,742 under an extension relating to building bylaws.

Claim partially granted

Clarendon Hôtel was claiming nearly $2.8 million by the time closing arguments were presented at trial. The insurers filed a counterclaim seeking repayment of amounts they said had been overpaid. In her 127-page decision comprising 713 paragraphs, Justice Cossette carefully analyzes the various claims.

The court reduced the amount payable by the insurers to $880,275.16. Legal interest and the additional indemnity are added and calculated from the date the action was instituted, January 21, 2022.

The defendants Tokio Marine and Northbridge were also ordered to pay $25,019.54 because their delay in paying their respective portions of the indemnities forced the insured to incur financing costs. The insured discovered after the loss that Northbridge had entered into a co-insurance agreement with Tokio. The latter took 192 days to pay its portion of the actual loss, 132 days beyond its legal obligation.

Repair or improvement

The Clarendon building was constructed in several stages beginning in 1858, with sections added in the 1920s and additional floors built at the rear of the building in 1996. The building consists of different sections with distinct configurations and materials.

At the time of the loss, which primarily affected the sixth floor, the building had seven storeys housing 143 rooms, a ground floor containing a restaurant and reception rooms, and a basement. At least 52 rooms sustained no damage because of the loss, including 42 rooms in the lower section.

The insurers covered work in 64 damaged bathrooms. The insured decided to renovate all these rooms. This combination of insured work and voluntary renovations largely explains the dispute between the hotel owners and their insurers.

Emergency work and selective demolition, including cleaning and the removal of asbestos-containing materials, took place from late January to August 2019. Between July and December 2019, fire-related reconstruction took place at the same time as renovation work.

The 48 rooms on the fifth and sixth floors were scheduled to reopen in January 2020, as the indemnity provided under the insurance contract was limited to the first 12 months following the loss.

The service providers

An adjuster from IndemniPro was retained by Intact to manage the claim. Loss estimators from Allan Jessome & Associates were also involved in the file. Introduced to the insured by the adjuster, Construction et Rénovation M Dubeau was retained by the Clarendon to repair the damage resulting from the loss. The same company was responsible for modernizing the facilities. Groupe Qualinet handled the cleaning and drying of the premises.

Damage caused by the flames was confined to the sixth floor, primarily near rooms 624 and 628. The fifth floor sustained significant damage from the water used by firefighters to extinguish the fire.

Where possible, contractor Dubeau formed separate teams to distinguish the loss-related reconstruction work from the renovation of rooms that had not been affected by the loss. The parties reviewed the invoices as the work progressed.

Compensatory measures

The insured’s representative said he had asked the insurers more than once whether the method used to submit its claim for compensatory measures was appropriate. It was not until February 2021 that the insurers responded on the matter.

By the time closing arguments were presented, the compensatory measures claimed by the hotel amounted to $813,394.89, representing the difference between the amount estimated by the insured and the amount recognized by the insurers.

Justice Cossette analyzes the various components of the plaintiff’s claim and awards $93,704.29, in addition to $228,725.88 that the insurers agreed to pay, for a total of $322,430.17.

Compliance with standards

More than half of the Clarendon’s claim was based on $1.4 million in indemnities denied by the insurers for obsolescence, latent defects, non-compliance and other reasons. The hotel relied on the coverage extension set out in clause 43.3 of the contract, entitled Building Bylaws, which could cover certain additional costs resulting from the application of building standards following a loss. Among other things, the clause excluded requirements with which the insured was already required to comply before the loss.

The plaintiff alleged that it could not “reasonably have imagined” having to pay such an amount “simply to restore a functional hotel following a loss, when it had been functional before.” In its view, this was not the outcome an insured was entitled to expect given the “exceptional coverage it believed it had purchased for a historic building dating in part to the 19th century.”

At paragraph 316, the court notes that the hotel had a functional cast-iron plumbing system. The Clarendon did not want to redo the plumbing. In June 2019, “the plumber insisted that the cast-iron plumbing be completely redone, failing which he refused to warranty the work performed by his team.”

The Court rejected the notion that a pre-existing deficiency could become covered simply because it was discovered in the course of the work. “The wording of the policy is clear and does not require interpretation by the court,” Justice Cossette wrote.

The court agreed with the insurers. In this context, the subcontractors’ refusal to provide a warranty unless the work required to bring the property into compliance was carried out “is not an insured risk under the policy and does not trigger its application.”

The same reasoning was applied to the claim, denied by the insurers, for bringing the electrical systems on floors of the building unaffected by the loss up to code. The claim for compliance with fire safety standards was also rejected for the same reasons.

The court reiterated that the purpose of an insurance contract is to indemnify damage caused by a loss, not to correct defects and instances of non-compliance that existed beforehand. “The loss merely provides the occasion to discover them,” Justice Cossette wrote at paragraph 401. She added shortly thereafter: “An insurer is not required to bear the cost of a repair that an insured was legally required to make before the loss.”

Nearly 40 invoices that the insurers refused to pay were also included in the Clarendon’s claim, totalling $129,554.50. The court analyzed each of them in detail and allowed some of them, for a total of $34,316.65.

Replacement value of contents

Part of the judgment deals with the inadequacy of the coverage limit purchased by the hotel for its contents and the application of the co-insurance rule. The replacement value of the contents was estimated at $2.11 million, while the Clarendon had coverage of $1.28 million. To meet the 80% insurance requirement, it should have had $1.68 million in coverage. The Clarendon had also decided not to replace the damaged contents with property of like kind and quality.

The company argued that an agreement with the insurers nevertheless entitled it to greater indemnification. The Court found insufficient evidence of such an agreement. It noted communications clearly indicating that the depreciated value would initially be paid and that replacement cost would be paid after replacement. This portion of the claim was dismissed by the court, and the indemnity already paid was found to have discharged the insurers’ obligation.

At paragraph 112, the court stated that it was “mindful of the fact that application of the co-insurance rule involves concepts whose nuances are not easy to grasp at first. Indeed, this portion of the hearing required lengthy explanations. That said, the fact that the insured’s representatives may have misunderstood its consequences does not mean that the clear terms of the policy should be disregarded or that an agreement was reached as alleged.”

Business interruption

In addition to the approximately $5.5 million received by the insured to cover its business interruption losses and additional expenses, the hotel was claiming an additional $522,044.54.

Each party submitted expert evidence regarding the benchmark revenue. A difference of $384,122.95 remained between the two experts’ calculations, before additional expenses. The court awarded the insured $240,692.47. No further amount was awarded for additional expenses.

Sum of overpayments revised

The insurers sought more than $1.2 million in their counterclaim, arguing that they had paid for work that was not covered. The insured acknowledged owing $497,578.28. The difference between the parties was $712,341.

Justice Cossette analyzes the various claims made by the insurers. Several were dismissed because there was insufficient evidence, on a balance of probabilities, that the insurers had actually paid for the work in question. The court allowed some of the claims, totalling $47,976.

The court therefore ordered the Clarendon to pay the insurers $545,554.28. Legal interest and the additional indemnity are calculated from the date the insurers’ counterclaim was served. The court ordered that the awards be set off against one another.

The insured will bear the full cost of the expert evidence relating to the indemnities denied for obsolescence and latent defects, as the court dismissed those elements. The parties will each bear half of the Jessome costs, given the mixed outcome of the various claims. Each party will bear its own costs for the experts who testified regarding business interruption, as the court found that both expert opinions provided relevant insight.