In an insurance policy the obligation to defend an insured is broader than the obligation to indemnify.
The Applicants, who were in the house moving business successfully applied for a declaration that their insurer had a duty to defend them against an action for damages that allegedly occurred in the course of moving a home belonging to a third party.
601260 Saskatchewan Ltd. v. ING Insurance Co. of Canada [2008] S.J. No. 730 Saskatchewan Court of Queen's Bench J.A. Ryan-Froslie J. November 19, 2008
The Applicants, 601260 Saskatchewan Ltd and Mr. Ireland who was the director, officer and employee of the numbered company, were in the house moving business. They had a Commercial General Liability policy of insurance (“the CGL policy”) with the Respondent. The Applicants were hired to move a home for the Fitzsimonds who alleged that while the house was being placed on the new foundation it was damaged along with the basement and foundation. The Fitzsimonds subsequently commenced an action against the Applicants for breach of contract and negligent misrepresentation. The Respondent initially defended the Applicants in relation to the claim, but later advised they had no obligation to do so, citing the exclusions in the CGL policy.
The Court held that the duty to defend was broader than the duty to indemnify; it is not necessary to prove that an obligation to indemnify will in fact arise in order to trigger the duty to defend. The onus rests on the insured to establish that the claims in issue fall within the insurance coverage. Once this is established, the onus shifts to the insurer to show that an exclusion clause applies. The threshold for the insured is low and the threshold for the insurer is high because general coverage provisions are interpreted broadly while exclusion clauses are interpreted narrowly against the insurer.
The Court cited the three-step process to be followed in assessing whether a claim triggers the obligation to defend which was outlined by the Supreme Court of Canada in Non-Marine Underwriters, Lloyds of London v. Scalera, [2000] 1 S.C.R. 551. First, the Court must determine the "true nature" of the claims alleged against the insured. Second, the Court must determine if any of the claims are "derivative" in nature. That is, whether the underlying elements of what is claimed are identical to other claims which are not covered by the policy. Third, the Court must determine whether any of the properly pleaded non-derivative claims may be covered by the insurance policy. If they are, then the insurer's obligation to defend is triggered.
When embarking on the three-step process the Court should give effect to the reasonable expectations of the parties to the insurance contract and it should be kept in mind that insurance usually makes economic sense only where the losses covered are unforeseen or accidental. Any ambiguity in the wording of the insurance policy should be construed against the insurer.
One of the exclusion clauses relied upon by the Respondent was the “own work” clause in the CGL policy. In short, this clause exempts from coverage any work done by the insured. The Court held that the damage to the foundation and the basement were not covered by the exclusion and the Respondent had a duty to defend those claims. However, the claim in relation to the house itself fell under the exclusion.
The Respondent also relied upon a clause that excluded from coverage any “personal property in the care, custody, or control of the named insured.” The Court held that if there was damage to the personal property located outside of the home the Respondent’s obligation to defend would be triggered in relation to that damage.
Lastly, the Respondent relied upon a clause that excluded coverage from damage that arises from the “removal or weakening of support of any property…”. The Court held that this exclusion clause would only apply to the house as no supports were removed from the foundation or the basement.
The Court also held that Mr. Ireland's liability was not synonymous with that of the company. As such, the claims against Mr. Ireland are derivative in nature. The Respondent did not argue that the exclusions applied to Mr. Ireland directly and so it was determined that the Respondent had a duty to defend him.
This case was originally summarized by kyee@harpergrey.com and originally eduted by dpilley@harpergrey.com
