Pleadings that are emended to include allegations of negligence may create a duty to defend the entire claim under a contract of insurance.
This was an appeal by an insurer from a decision finding that it had a duty to defend an action in its entirety after the pleadings were amended to include allegations of negligence that the insurer argued might not give rise to liability under the policy. The Court of Appeal held that the correct test was whether the true nature or substance of the claim was one that could give rise to liability within the policy coverage and dismissed the appeal.
ING Insurance Co. v. SREIT (Park West Centre) Ltd.,  N.S.J. No. 158, April 15, 2009, Nova Scotia Court of Appeal, M. MacDonald C.J.N.S., J.E. Saunders and M.J. Hamilton JJ.A.
The respondents SREIT (Park West Centre) Ltd. (“SREIT”) owned and managed a commercial property in Halifax and contracted with D. & J. Excavating (“D. & J.”) to provide snow and ice removal services. D. & J. was required to maintain liability insurance and did so with the appellant ING Insurance Co. (“ING”). SREIT was identified as an additional insured under that policy.
The underlying action was started when a pedestrian sued for injuries sustained after he slipped on ice and fell outside SREIT’s premises. ING was prepared to provide a complete defence to SREIT until the pedestrian amended his statement of claim to include an allegation that SREIT was negligent in failing to properly maintain the rain gutters and manage the roof water runoff near the sidewalk thereby causing or contributing to the ice buildup on which he fell. ING refused to defend SREIT against the rain gutter allegations. SREIT brought an application for a declaration obliging ING to assume and pay for the entire defence in the underlying action. The application was allowed and ING was ordered to assume a complete defence of SREIT’s interests in the action.
On appeal, the Court held that whether the amended claim triggered a duty by ING to defend the entire claim must be determined based on the facts as pleaded and the insurance coverage provided, after taking into account any exclusions from that coverage found in the policy. The Court noted that the duty to defend, unlike the duty to indemnify, is triggered not by actual acts or omissions of an insured, but rather by allegations against the insured. The mere possibility that a claim within the policy may succeed is enough. An insurer cannot resist a duty to provide a defence simply by raising other possible scenarios in which there would be no coverage.
The Court held that the chambers judge was correct in ordering ING to mount a complete defence on behalf of SREIT and noted his three principal reasons for that decision. First, the substance and true nature of the claim was that the premises were not reasonably safe because of an icy sidewalk which had not been salted, a pleading which could give rise to liability within the policy coverage, regardless of whether the icy conditions were caused or exacerbated by a leaky gutter. Second, and in the alternative, if the amended statement of claim contained allegations that fell both within and outside the coverage, then the claims were so intertwined as to permit no rational or practical basis for bifurcating the respondents' defence. Third, any apparent or actual conflict of interest would not, in the circumstances of this case, trump ING's duty to defend.
In the result, the appeal was dismissed.