An insurer that tenders its policy limits has no continuing obligation to defend.

A defendant in four separate motor vehicle actions resulting from the same action had been defended by counsel retained by his insurer.  The insurer paid out its limits in full settlement of three of the claims and partial settlement of the fourth.  The fourth action was to continue against the defendant and the lawyer applied to get off the record.  The court granted the order, holding that to require insurers to continue to defend an action against their insured after paying out the policy limits would discourage settlement of actions.

Dominion of Canada General Insurance Co. v. Kingsway General Insurance Co. [2011] O.J. No. 811, February 24, 2011Ontario Superior Court of JusticeH.S. Arrell J.

 

The defendant in the underlying action was the operator of a vehicle involved in a very serious single car accident where four individuals were either killed or badly injured.  Four separate actions were commenced against the defendant, who was insured by Kingsway General Insurance Co.

Kingsway retained counsel to represent the defendant in the four actions.  At mediation, Kingsway tendered the full limits of its policy and this was accepted on a pro-rata basis on the consent of all the plaintiffs.  The plaintiff in the fourth action had also sued her own insurer, Dominion of Canada General Insurance Co., with whom she had underinsurance coverage with limits of $1,000,000.  Dominion attended the mediation and signed the Minutes of Settlement, but did not contribute financially to the settlement.  The settlement between this plaintiff and the defendant provided that her action could continue against Dominion, and that Dominion in turn would get an assignment of the judgment so it could seek contribution from the defendant personally.  It was conceded that this plaintiff's claim would well exceed the insurance available from the defendant's policy.

The counsel retained by Kingsway to defend its insured brought this application to get off the record following the settlement at mediation.  Kingsway argued that it had defended its insured to the extent required under the policy and that, as it had paid out 100% of its policy plus costs to each of the plaintiffs, there was no further possibility of any additional indemnity payment available and no further duty to defend.  Dominion argued that Kingsway's duty to defend under the policy continued as long as Dominion's insured, the defendant, was exposed in a lawsuit, even if that exposure was only in a personal capacity.

The relevant section of the Ontario Automobile Policy provided that if an insured is sued, the insurer "will hire lawyers at our expense and cover all costs of your defence in court".  However, the policy also provided that the insurer had the unfettered right to settle a case up to the policy limits at its sole discretion, and also stated:

If you are sued for more than the limits of your policy, you may wish to hire, at your costs, your own lawyer to protect yourself against this additional risk.

The motions judge concluded that there was nothing in the Ontario Automobile Policy that obliged an insurer to continue to defend an insured when it had paid its limits and costs in full.  The judge also reviewed the relevant case law, and held that it was clear that there is no duty to defend if there is no possibility of a duty to indemnify.  In this case, it was conceded that there was no possibility of any remaining duty to indemnify on Kingsway's part.  To hold that Kingsway must continue to defend and pay all defence costs, which would benefit only Dominion, would be illogical and fly in the face of encouraging primary insurers to enter into timely resolution of cases.  In the result, the court held there was no further duty for Kingsway to provide a defence to its insured.

This case was digested by Emily M. Williamson and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at ewilliamson@harpergrey.com or dpilley@harpergrey.com or review their biographies at http://www.harpergrey.com

 

 

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