An insurer may be responsible for costs when an unsuccesful legal defence is provided to an insured pursuant to an insurance policy.
The Appeal by an insurer from an allocation of 95% of the costs of the insured's defence in a wrongful dismissal and malicious prosecution action to the insurer was dismissed where the court held that incidental assistance that the defence of the covered claim provided for the uncovered claim was not relevant to the determination of the insurer's liability for costs incurred by the insured for the defence of the claim.
Hanis v. Teevan [2008] O.J. No. 3909 Ontario Court of Appeal D. H. Doherty, R. J. Sharpe and E. E. Gillese JJ.A. October 8, 2008
Dr. Hanis ("Hanis") was hired by the University of Western Ontario ("Western") as Director of the University's social science computing laboratory. Hanis was fired in October, 1986. Hanis sued Western in 1987 and the Statement of Claim advanced numerous allegations against Western including an allegation of malicious prosecution. Western had comprehensive general liability insurance policies with its insurer ("Guardian"). Guardian denied its duty to defend and Western commenced third party proceedings seeking a declaration that Guardian was required to provide a defence. The third party action was held in abeyance by agreement until the main action was completed. The trial of the main action completed in February, 1994 with a dismissal of Hanis's claim against Western. Hanis launched an appeal which was allowed in part in June, 1998 and Hanis was awarded damages for wrongful dismissal.
In 2002 Western successfully moved for summary judgment on its third party claim against Guardian. The Court determined that Guardian had a duty to defend at least some of the claims under one of the Guardian policies. The Court ordered the trial of a number of the issues.
At trial, the Court held that Guardian was obliged to pay all defence costs related to the defence of claims covered by the policy even if those same costs furthered the defence of uncovered claims. Guardian was not required to pay defence costs solely related to the defence of uncovered claims. The trial judge determined that 5% of the defence costs related exclusively to uncovered claims. Guardian was held liable for 95% of the costs, quantified at slightly more than $2,000,000; see Hanis v. University of Western Ontario (2005), 32 CCLI (4th) 255. Guardian appealed the trial judge's allocation of defence costs.
On Appeal, the Court held that the question of apportionment of costs should be determined by the operative language in the policy. Where there is an unqualified obligation to pay for the defence of claims covered by the policy, as in this case, the insurer is required to pay all reasonable costs associated with the defence of those claims even if those costs further the defence of uncovered claims. The insurer is not obliged to pay costs related solely to the defence of uncovered claims. The Court noted that there was no unfairness to the insurer in holding it responsible for all reasonable costs related to the defence of covered claims if that is what is provided for by the language of the policy. If the insurer has contracted to cover all defence costs relating to a claim, those costs do not increase because they also assist the insured in the defence of an uncovered claim.
In this case, on a plain reading of the relevant part of the policy, Guardian was responsible for all costs associated with the defence of the malicious prosecution. The determination of what part of the defence costs related to the defence of the malicious prosecution claim was a factual one attracting the well known standard of appellate deference. The trial judge heard extensive evidence on this point and the Court of Appeal did not find any grounds to interfere with the trial judge's finding that 95% of the defence costs related to the defence of a covered claim.
In the result, the Appeal by Guardian was dismissed.
This case was originally summarized by jmeadows@harpergrey.com and originally edited by dpilley@harpergrey.com
