No Duty to Defend Parents of Alleged Bully

The Court of Appeal has held that an insurer does not have a duty to defend its insureds with respect to claims that they failed to prevent bullying.

In Unifund v. D.E., 2015 ONCA 423 (C.A.), the insurer refused to defend parents of an alleged bully.  In the underlying action, the plaintiff alleged that the parents' daughter had bullied her at school.  The allegations against the parents were that they knew or ought to have known about the bullying, and failed to investigate it, take steps to prevent it or take disciplinary action. The Unifund policy contained an exclusion which provided as follows:

We do not insure claims arising from:

6. bodily injury or property damage caused by an intentional or criminal act or failure to act by:

(a) any person insured by this policy; or

(b) any other person at the direction of any person insured by this policy;

7.(a) sexual, physical, psychological or emotional abuse, molestation or harassment, including corporal punishment by, at the direction of, or with the knowledge of any person insured by this policy; or

(b) failure of any person insured by this policy to take steps to prevent sexual, physical, psychological or emotional abuse, molestation or harassment or corporal punishment.

The application judge held that the exclusion was limited to an intentional failure to prevent physical abuse rather than negligence.  The Court of Appeal allowed the appeal.  Justice MacPherson held that by using the word "failure" in the exclusion clause, it extended to negligence.  Unifund had no duty to defend or indemnify its insureds in the underlying action.

The Test to Determine Whether an Insured "Permitted" the Unauthorized use of a Motor Vehicle

A recent decision looked at the test to determine whether an insured permitted someone else to drive his vehicle when she was not authorized to do so.

In O’Connell v.Personal Insurance Co., (2014 ONSC 1469 (S.C.J.), the insured let his girlfriend borrow his motor vehicle. The insured’s girlfriend was involved in an accident. It turned out that the insured’s girlfriend only had a G1 license and therefore she was not authorized to drive alone or on a 400 series highway, where the accident occurred. The insured stated that he had assumed his girlfriend had a full license. At trial, the insured’s girlfriend testified that she had not told the plaintiff that she did not had have a full license because she was embarrassed. The insurer denied a defence and indemnity on the bases that the insured had breached statutory condition 4(1) of the Ontario Regulation 777/93 and section 1.4.5 of the OAP, by allowing someone else to drive his vehicle when they are not authorized to do so.

The court held that the insured had not “permitted” his girlfriend to drive when she was not authorized to do so. In reaching this conclusion, the court held that the test to determine whether an insured permitted the use of their vehicle by an unauthorized driver is whether the insured took all reasonable and prudent precautions to see that the statutory condition was not contravened. The court held that the insured knew his girlfriend had a driver`s license and it looked the same has his full G license, he had heard her anecdotes involving driving in the past and she had never told him that she only had a G1 license. Given this, the court held that the insured acted as reasonably and prudently as an average individual in similar circumstances, the statutory condition was not breached and the insurer was bound to defend and indemnify the insured.

Automatic Renewal Section of Policy Does Not Obligate Insurer to Renew

Does an "automatic renewal" section in a home owner's policy require the insurer to renew?  A recent decision says "no".

In Merei v. State Farm Fire and Casualty Company, 2014 ONSC 1960 (S.C.J.), the plaintiffs' home was destroyed by fire eight days after their home insurance policy was cancelled.  The insurer's underwriting department made the decision not to renew the policy after the plaintiffs made three claims and had a history of non-payment.  The policy contained the following clause:

Automatic Renewal – if the policy period is shown as 12 months, this policy will be renewed automatically subject to the premiums, rules and forms in effect for each succeeding policy period. If this policy is terminated, we will give you and the Mortgagee/Lienholder written notice in compliance with the policy provisions or as required by law.

The plaintiffs alleged that the "automatic renewal" section of their policy obligated the insurer to renew the policy as they were not in arrears, not in breach of any of the rules in the policy and had submitted all forms.

The Court disagreed, relying on the plain reading of the contract (and common sense).  Justice Carey held that the policy was intended to allow for a renewal of the policy when the policy has not been cancelled.  He stated, "It is contrary to all rules of interpretation and normal insurance practice to conclude the insurer intended that they could only cancel the policy if the policy was not in good standing". 

Duty to Defend - Extrinsic Evidence Not Permitted

In Liardi v. Riotrin Properties (Kingston) Inc., 2013 ONSC 7544 (S.C.J), the defendant, Future Shop, brought a motion for a declaration that Zurich had a duty to defend the underlying action.  The issues on the motion were whether the plaintiff's pleadings raised covered and non-covered claims, and whether extrinsic evidence could be admitted in enlarge or explain the pleadings.

In the main action, the plaintiff alleged he bought a television at Future Shop and was instructed to move his car to the back of the store to load it.  An employee was having difficulty lifting the television so the plaintiff got out of his car to assist.  He alleged he slipped on ice and fell as he was walking to the rear.  The allegations against Future Shop included that it failed to have adequate persons to load the television, knew a dangerous condition existed and failed to ameliorate it, failed to ensure the premises were properly salted/sanded, and failed to properly monitor the area.

The landlord, Riotrin, was responsible for common areas under the lease.  Future Shop was named as an additional insured on the landlord's policy with Zurich.

Zurich sought to introduce extrinsic evidence as to the way Future Shop operated its businesses, including policies with respect to loading merchandise into customers' cars.  Justice Tausendfreund refused to admit the evidence as it touched on matters at issue against Future Shop which might prejudice Future Shop or bring it into conflict with the insurer.

Justice Tausendfreund held there was a duty to defend.  The plaintiff fell on snow and ice in the parking lot and the reason he did so was not relevant.  The claim did not relate to the way Future Shop did business but rather to the condition of the parking lot.  

When deciding duty to defend motions, courts will look at the essence of a claim.  It may be difficult to show that certain parts do not require a defence unless there are clear claims that could stand on their own.

Claim for Contribution and Indemnity for Negligent Supervision Not Caught by Exclusion Clause

The Court of Appeal recently held that an insurer was obligated to defend a homeowner against a Third Party Claim alleging she failed to supervise her own daughter.


In Bawden v. Wawanesa Mutual Insurance Company, 2013 ONCA 717 (C.A.), eight year old Kelly Bawden was struck and injured by a motor vehicle driven by Joyce Wilson and owned by Randal Wilson in August 2003.

Kelly’s mother, Elizabeth Bawden, sued the Wilsons in her capacity as litigation guardian seeking damages on Kelly’s behalf. The Wilsons brought a third party claim against Elizabeth Bawden and Kelly’s father, David Bawden, claiming contribution and indemnity for failing to properly instruct and supervise their daughter.

The Bawdens held a homeowners’ insurance policy issued by Wawanesa Mutual Insurance Company. Wawanesa declined to defend them on the third party claim. The Bawdens brought an application for coverage. The application judge found in favour of the Bawdens. Wawanesa appealed to the Ontario Court of Appeal.

The critical coverage provision in the policy stated:

                You are insured for claims made or actions brought against you for:

1. personal Liability: bodily injury or property damage ­arising out of your personal activities anywhere in the world. [Emphasis added]

Exclusions: you are not insured for claims made or actions brought against you for…

1. bodily injury to you or to any person residing in your household other than a residence employee. [Emphasis added]

Wawanesa argued that the exclusion clause removed all claims for bodily injury by the insured and those residing in their household. The Court of Appeal disagreed and the appeal was dismissed. 

The Court held that the coverage provision must be interpreted broadly and therefore clearly encompasses the third party claim which arises out of the insureds’ personal activities in negligently failing to supervise their daughter. 

Further, the Court held that the exclusion clause must be read narrowly. It cannot encompass the third party claim which is not a claim on behalf of Kelly for her injury, but a claim by the Wilsons against the Bawdens for contribution and indemnity.

Lastly, the Court considered the policy objectives of the exclusion clause. The exclusion clause removes from coverage those claims that raise a risk of collusion between family members. This risk is not present in this case in which the Wilsons have brought a third party claim against the insureds. 

Excess Insurance

Excess insurers may be interested in the recently reported decision of ACE INA Insurance v. Associated Electric & Gas Insurance Services Ltd., [2012] O.J. No. 6500 (S.C.J.).

ACE insured Toronto Hydro, which was sued over an explosion that occurred in the underground parking of a high-rise apartment building.  AEGIS was the excess insurer.  Although there was no explicit duty to defend under the AEGIS policy, ACE brought an application that AEGIS had a duty to pay defence costs pursuant to the doctrine of equitable contribution.

The AEGIS policy was an "indemnity policy" rather than a "liability policy".  Under its policy, AEGIS limited its indemnity obligation where there is other insurance, and limited its duty to indemnify to defence costs incurred by the insured, not those incurred by a third-party such as ACE.  Defence counsel had been appointed by ACE rather than the insured.  AEGIS's obligation was only to indemnify defence costs at the end of the litigation, where the costs were not covered by other insurance.    

Justice C.J. Brown rejected the argument that AEGIS had an equitable duty to contribute to defence costs despite the clear wording of the policy.  There is no equitable obligation to defend where an excess policy precludes a duty to defend.  In addition, a relevant factor was that any defence costs paid by AEGIS would reduce the policy limits available to the insured so there was potential prejudice to Toronto Hydro. 

Limitation Periods in Duty to Defend or Indemnify Cases

When does the limitation period begin to run in duty to defend or duty to indemnify cases?

In Georgian Downs Ltd. v. State Farm Fire and Casualty Co., 2013 ONSC 2110 (S.C.J.), the applicant sought an Order compelling State Farm to pay its defence costs.  Georgian was a defendant in a slip and fall action, and State Farm insured Georgian's winter maintenance contractor.  Georgian was added as an additional insured to the contractor's policy.  The underlying claim was ultimately settled on the basis of the contractor's admission of liability.

One of the issues was when the limitation period began to run.  Although counsel exchanged correspondence back and forth about defence costs, there was no clear and unequivocal denial of Georgian's request for defence costs.

Justice Mulligan held that "when there is an absence of a clear and unequivocal denial of a duty to defend or a duty to indemnify, a limitation period commences on the day of judgment or settlement."  Using such an interpretation promotes certainly, since it fixes a readily ascertainable date, rather than being dependent on subjective questions of discoverability.

Presumably, if the facts were different and State Farm had clearly denied the request to pay defence costs, the limitation period would have commenced at that time.

Insurer Obligated to Continue Paying Defence Costs

Jevco v. Malaviya,2013 ONSC 675 (S.C.J.).

Malaviya was insured under a Standard Automobile Policy (SAP) with Jevco for the minimum liability limit of $200,000.  He was sued following an accident in 2005. The insurer paid the limits of its policy, then sought a declaration that it had no continuing duty to indemnify or defend Malaviya.  The contentious issue on the application was whether Jevco was obliged to continue paying the insured’s defence costs.

Justice Morgan described the wording of the SAP as “muddled and contradictory”.  It failed to clearly answer whether the insured would pay the insured’s legal costs above and beyond the coverage limit.  On the other hand, s. 245(b) of the Insurance Act provides that the insurer shall bear the defence costs of a claim.  There is no limiting language in s. 245.  As a result, the insurer is obligated to continue paying defence costs of the insured, even when there is no further duty to indemnify. 

The  SAP may have to be modified in order to avoid this situation from arising in the future.

Costs of Compliance Are Not Defence Costs

General Electric Canada Company v. Aviva Canada, Inc., 2012 ONCA 525 (C.A.)

At what point do costs of compliance become defence costs?

GE sought a declaration that its insurer, Aviva, had a duty to defend it in respect of a request by the Ministry of the Environment to provide information regarding contaminated groundwater near a property once owned by GE.  The Ministry asked GE to delineate the source area on its property.  GE did not oppose the request and incurred significant costs in complying.  GE argued that the costs associated with complying with the Ministry’s request were defence costs and therefore were payable under its insurance policy.  The application judge dismissed the application and GE appealed.

The Court of Appeal dismissed the appeal.

One of the key factors was that GE did not oppose, defend or investigate the Ministry’s request.  Since it voluntarily complied with the request, it did not suffer any defence or investigation costs.  The Court held that the costs incurred were compliance costs, not defence costs, and therefore were not covered by the policy.

Extrinsic Evidence in Duty to Defend Applications

1540039 Ontario Limited v. Farmers Mutual Insurance Company (Lindsay) 2012 ONCA 211 (C.A.)

The primary issue in this duty to defend application was the admissibility of extrinsic evidence regarding a lease. The applicant was the owner of a plaza. It was sued after a worker was electrocuted while installing a sign. The deceased had been hired to install the sign on behalf of a tenant of the plaza, Design Depot. Under the lease between 1540039 and Design Depot, the landlord was added as an additional insured. 1540039 brought an application seeking to be defended by Design Depot's insurer. It sought to introduce evidence that the deceased was hired by Design Depot.

The application judge refused to admit the evidence and the Court of Appeal dismissed the appeal.  It cited the Supreme Court decision of Monenco that held that extrinsic evidence will rarely be allowed in duty to defend applications. In addition, the evidence did not assist in any event as the allegations against 1540039 related to its ownership of the plaza and the lease agreement did not extend coverage in the circumstances.

The door is still open to allow extrinsic evidence in certain cases, but in general the primary focus on duty to defend applications will be on the policy itself.

Duty to Defend - Winter Maintenance Contractor

Minto Developments Inc. v. Carlsbad Paving, 2012 ONSC 1574 (S.C.J.)

Minto brought an application seeking a declaration that Carlsbad and its insurer, Intact, were obligated to provide it with a defence.  Minto was a property owner that was named as a defendant in a slip and fall action.  Carlsbad contracted with Minto to provide winter maintenance on the property.  In the contract, Carlsbad agree to indemnify and save harmless Minto, to maintain a CGL policy with $2,000,000 limits and to add Minto as an additional insured.

Carlsbad refused to assume the defence.  It argued that the claim included allegations of negligence with respect to snow and ice removal, inspection, warning signs, breach of lease agreement and occupier's liability.  Its position was that the majority of the claims did not fall within the scope of coverage and stood on their own.

Justice Kershman held that the true nature of the Statement of Claim was that of a negligence case where the plaintiff slipped on snow and ice in the parking lot.  It therefore fell within the scope of coverage and Intact had a duty to defend Minto. 

Duty to defend issues arise fairly often in slip and fall cases where the property owner hires a contractor to maintain the property.  It is important to look closely at the Statement of Claim to determine the true nature of the claim; the mere insertion of a number of different allegations by the plaintiff will not necessarily be enough to take the claim outside of the scope of coverage.

Duty to Defend - Exclusion Clause did not Apply

Durham District School Board v Grodesky 2012 ONCA 270 (C.A.)


This appeal highlights the importance of carefully crafted exclusions in insurance policies.

In the underlying action, the school board alleged the appellants' son intentionally set fire to the school. The appellants were added as defendants based on allegations that they failed to impose a curfew and to supervise their son. Their insurance company refused to defend them based on the following exclusion in their home owner’s policy:

We do not insure your claims arising from (6) Bodily injury or property damage caused by any intentional or criminal act or failure to act by: (a) any person insured by this policy; or (b) any other person at the direction of any person insured by this policy.


The motion judge held there was no duty to defend. He relied on G.P. v. D.J., 26 C.C.L.I. (3d) 76 (Ont. S.C.), a case interpreting the same exclusion clause, which held any tortious failure to act (not just an intentional or criminal one) triggered the exclusionary clause.

The Court of Appeal allowed the appeal. The exclusion clause could be read in two ways: 1) where the words “intentional” or “criminal” modify the phrase “act or failure to act”, or 2) excluding an intentional or criminal act, or any failure to act. Juriansz J.A. held the exclusion could have been read as excluding a mere negligent failure to act; however, such an interpretation would have the effect of excluding almost every negligence action, rendering coverage useless. He cited Non-Marine Underwriters, Lloyd’s of London v. Scalera, [2000] 1 S.C.R. 551, where the Supreme Court considered a similar clause and held that reading the clause to exclude negligent failures to act would lead to absurd consequences.

The Court also considered whether the negligence claim was derivative of the intentional tort claim in order to determine whether it was excluded by the clause. Juriansz J.A. held that the negligence claim was not derivative of the intentional tort claim as the elements alleged against the parents were distinct. As a result, the exclusion did not apply and the parents were entitled to a defence.

Interpretation of the Insurance Contract – Back to the Basics

In Sam’s Auto Wrecking Co. (c.o.b. Wentworth Metal) v. Lombard General Insurance Co. of Canada (S.C.J.), the Operations Manager of Sam’s Auto, Mr. Farber, was injured on the job when he was run over by a crane being operated by an employee, resulting in the severance of his right leg between the ankle and knee and a serious cut to his left heel.

Mr. Farber was not an owner but was considered to be a part of the management team at Sam’s Auto. Prior to the incident, the owners had decided to opt out of WSIB insurance for themselves and Mr. Farber, for economic reasons. They purchased alternative disability insurance. However, they were left with a gap in coverage for which they were unaware.

When they approached the broker for Lombard to acquire a comprehensive business policy, they did not advise him that not everyone at their company had WSIB coverage. They obtained a comprehensive business insurance policy through Lombard which included commercial general liability. Because no one was aware of the gap in coverage, an employer’s liability endorsement was not requested.

Following the incident, Mr. Farber sued Sam’s Auto. Lombard took an off coverage position and consequently would not provide a
defence. As a result, this action was commenced.

The issue before the court was whether the personal injury experienced by Mr. Farber, due to the actions of an employee at Sam’s Auto, operating within the scope of his employment, was or should have been covered by the insurance policy Sam’s Auto had through Lombard.

Justice Whitten used basic contract interpretation principles in his interpretation of the insurance policy:
1) The contra proferentem rule;
2) The principle that coverage provisions should be construed broadly and exclusion clauses narrowly; and
3) The desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectation of the parties.

Justice Whitten cited the principle from Bathurst Ltd. V. Mutual Boiler and Machinery Insurance Company [1980] 1SCR 888 that the “objective is to search for an interpretation which from the whole of the contract would appear to promote or advance the true intent of the parties at the time of entry into the contract.”

Justice Whitten listed factors to consider, in an insurance context, to determine the intent of the parties at the time of entry into the contract:
1) What was the nature of the business operated by the potential insured?
2) Was there an independent insurance contractor involved? Or was the insurance solicited direct from the insurance company?
3) If a broker was involved, what was requested or communicated to the broker?
4) What was the broker’s understanding of what was communicated to him or her that guided the request for coverage from the insurer?
5) What was the broker’s understanding or knowledge as to the appropriate insurance coverage?

The policy stated: "We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of “bodily injury” to which this insurance applies...This insurance does not apply to … (d) “Bodily Injury” to an employee of the insured arising out of and in the course of employment by the insured".

Justice Whitten held that there was no ambiguity with respect to these sections and it was clear that personal injury to the public was covered but personal injury to an employee working in the course of his or her employment was exempt. Given the nature and size of the business, the broker was reasonable in assuming that all employees were covered by WSIB, and was not told any different. Therefore, the broker would not have been aware of the gap in coverage.

There were arguments advanced with respect to whether Mr. Farber would be considered an “employee” because of the management position he held. Justice Whitten held that the distinction between the terms “employee” and “executive officer” is purely “academic”, and had no bearing in this context.

It was held that there was a clear lack of coverage and therefore no duty to defend existed.

- Kristen Dearlove, Student-at-Law

D&O Insurance: The Policy Prevails

The Ontario Courts have reiterated the old insurance law adage that the wording of a policy prevails.

In Dunn v. Chubb Insurance, 2011 ONCA 36, the Court of Appeal recently upheld an application judge's decision requiring the insurer Chubb to pay 90% of certain defence costs of the respondents Dunn and Beatty, pursuant to a directors’ and officers’ liability insurance policy.

This proceeding arose out of allegations against Dunn and Beatty, former Nortel directors and/or officers.  They allegedly committed some "Wrongful Acts" (a term defined in the policy) in 2001 and then again in 2003.  The policy was a "claims made" policy and covered the period 2001. 

The insurer Chubb agreed to provide defences for Dunn and Beatty for proceedings relating to the 2001 conduct.  However, the insurer refused to pay the full defence costs for other proceedings arising out of both the 2001 and 2003 conduct.  The insurer argued that it was not responsible for the defence costs to the extent that those costs relate exclusively to the 2003 conduct.

There was however in the policy a special endorsement requiring the insurer to pay 90% of defence costs where there is a claim that includes both covered and uncovered matters.  However, the insurer took the position that the claims still had to fall within the period of 2001 and that the endorsement applied to allegations against insureds of wrongful conduct engaged in by an insured which is excluded from coverage, e.g. allegations of wrongful conduct in some capacity other than as a director and/or officer.

In the result, the application's judge and the Court of Appeal agreed that the endorsement in the policy applies and that the insurer is to pay 90% of defence costs per the terms of the endorsement.

This case emphasizes once again the importance of the terms of the policy itself.

The Supreme Court of Canada on a Duty to Defend - part 3

Justice Rothstein, for the Supreme Court of Canada in Progressive Homes Ltd. v. Lombard General Insurance Company of Canada, 2010 S.C.C. 33., helpfully affirmed that CGL insurance policies are most typically written in three sections, being (i) coverage, (ii) exclusions and (iii) exceptions to the exclusions.

Within the first section, the onus is on the insured to show that the pleadings fall within the initial grant of coverage.

The next section, exclusions, should be read in light of the initial grant of coverage and do not create coverage in themselves. Exclusions only preclude coverage when the claim otherwise falls within the initial grant of coverage.

The third section, exceptions to exclusions, also do not create coverage but bring an otherwise excluded claim back within coverage where the claim fell within the initial grant of coverage in the first place.
Justice Rothstein concludes that the pleadings reveal a possibility of “property damage” and also sufficiently allege an “accident” such that the claim in the pleadings falls within the initial grant of coverage provided by the policy. The insurer, Lombard, then argued that the “work performed” exclusion precludes coverage. Lombard argued that there was no “subcontractor exception” to the exception and therefore work performed by subcontractors was also excluded. However, Justice Rothstein concluded that the exclusion did not clearly exclude subcontractors’ work and that there is a possibility of coverage so that the duty to defend is triggered.

This decision helpfully sets out the law in this complex area in a clear and succinct way. Hopefully this will help eliminate some of the confusion.

The Supreme Court of Canada on a Duty to Defend - part 2

“Leaky condominiums” have become notorious in British Columbia.  In this case, Progressive Homes served as a general contractor and built several housing complexes.  Several actions were initiated against Progressive Homes alleging significant damage to the housing complexes caused by water leaking into each of the buildings.  Progressive Homes sought a defence to these actions from its insurer, Lombard, pursuant to commercial general liability insurance policies. 


The policies require Lombard to defend and indemnify Progressive Homes when Progressive is legally obligated to pay damages because of property damage caused by an occurrence or accident.  Lombard refused to defend the claims and Progressive brought an application for a declaration that Lombard is under a duty to defend.


Justice Rothstein went on to declare that an insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured to the claim. It is irrelevant whether the allegations in the pleadings can be proven in evidence. What is required is the mere possibility that the claim falls within the insurance policy. In examining the pleadings to determine whether the claim falls within the scope of coverage, the parties to the insurance contract should not be bound by the labels selected by the plaintiff but by the true nature or substance of the claim.

Justice Rothstein, for the Supreme Court of Canada, reiterated some significant principles of insurance policy interpretation, including that when the language of the policy in unambiguous, the court should give effect to the clear language and should read the contract as a whole. Where the language of the insurance policy is ambiguous, courts should prefer interpretations that are consistent with the reasonable expectations of the parties and courts should avoid interpretations that would give rise to an unrealistic result. Where these rules of construction failed to resolve an ambiguity, courts will construe the policy contra proferentem. Subsumed by the contra proferentem rule is that coverage provisions should be interpreted broadly and exclusion clauses narrowly.

Progressive Homes Ltd. v. Lombard General Insurance Company of Canada, 2010 S.C.C. 33.

The Supreme Court of Canada on a Duty to Defend - part 1

Recently, the Supreme Court of Canada held, by unanimous decision, that an insurer will be obligated to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim regardless of whether the allegations in the pleadings can be proven in evidence.  What is required is the mere possibility that a claim falls within the insurance policy.   Progressive Homes Ltd. v. Lombard General Insurance Company of Canada, 2010 S.C.C. 33.

The focus of the policy interpretation should first and foremost be on the language of the policy itself.  Justice Rothstein, for the Supreme Court of Canada, carefully reviewed the terms of the insurance policy.  I think this case helpfully emphasizes and reiterates the principle that the terms of the insurance contract itself must be carefully reviewed.  Not all insurance policies are the same and it is important for an insurer or coverage counsel to carefully review the terms of the policy.  The Supreme Court of Canada has emphasized that the duty to defend must be determined on the terms of the insurance policy.

The Duty to Defend

Cadillac Fairview Corp v. Olympia Sanitation Products Inc., [2010] O.J. No. 3306 (S.C.J.)

In the context of slip and fall actions, there is often both an owner/occupier of a property as well as a company hired to maintain the premises. Frequently there is a dispute over whether the contract between the two entities requires the contractor to assume the defence of its principal.

In this decision, the main action arose out of an alleged slip and fall occurring at the Promenade Mall. Cadillac Fairview hired Olympia as part of a cleaning contract in which Olympia agreed to insure and indemnify Cadillac Fairview for any losses arising out of Olympia’s contractual responsibilities. The incident report completed after the fall described that the plaintiff had fallen over something and described the cause of the injury as a “trip and fall” as opposed to a “slip and fall”. Some of the allegations in the Statement of Claim involved allegations of improper design and disrepair of the accident location.

Justice DiTomaso held that Olympia was not required to assume the defence and indemnity of Cadillac Fairview. The Riocan case was distinguished in the circumstances as there were independent allegations of negligence beyond the scope of Olympia’s cleaning contract. In Riocan, the Court held that the true nature of the plaintiff’s allegations fell within the scope of the hold harmless clause, so the contractor was obliged to defend. Justice DiTomaso in this case was unable to determine one particular claim that fell within coverage captured the true essence of the action, and further, it was possible that the plaintiff was injured in a way that was totally unconnected to Olympia’s responsibilities.

This case shows the complicated nature of the duty to defend and indemnify. Cases are determined on the specific facts and allegations made in the Statement of Claim in addition to the contract between the parties. Generally, where there is some allegation of independent negligence plead by the plaintiff, the independent contractor will not be required to assume the defence and indemnify its principal.

The Duty to Defend in a Homeowner's Policy

McKinnon J. of the Ontario Superior Court of Justice recently released a decision arising from a Rule 21 motion for determination of a question of law, namely whether an insurer owes a duty to defend homeowners arising out of a homeowner's insurance policy. The claim against the homeowners arose after they sold their house. The purchasers alleged misrepresentation on the part of the homeowners for failing to disclose the condition of the property. Poplawski v. McGrimmon, [2010] O.J. No. 33.

What I found interesting in this decision is the very helpful overview of the law on an insurer's duty to defend. Here are a few paragraphs from this overview:

There is a three step process to determine whether an insurer has a duty to defend its insured:
(a) Are the plaintiff's legal allegations properly pleaded?
(b) Are any claims entirely derivative in nature?
(c) Do any of the properly, pleaded non-derivative claims potentially trigger the insurer's duty to defend?

In considering whether a plaintiff's allegations are properly pleaded, courts are not bound by the legal labels chosen by the plaintiff. When ascertaining the scope of the duty to defend, a court must look beyond the choice of labels and examine the substance of the allegations contained in the pleadings. This does not involve deciding whether the claims have merit: the court need only decide, based on the pleadings, the true nature of the claims. A plaintiff cannot change negligence into an intentional tort simply through the choice of words.

In considering whether any of the claims potentially trigger the insurer's duty to defend, where the allegations of negligence constitute a separate tort and are not an attempt to "dress" intentional conduct as negligence, the insurer will be under a duty to defend: see Godonoaga (Litigation guardian of) v. Khatambakhsh, [2000] O.J. No. 2172 (C.A.) at paras. 28 and 32.

If there is any uncertainty as to whether a claim falls within the applicant's policy coverage, the uncertainty must be resolved in favour of the insured: see Co-Operators General Insurance Co. v. Murray, [2007] O.J. No. 2329 (S.C.J.) at para. 6.