A court may consider third party notices when determining whether a duty to defend an insured exists under a policy of insurance.
Successful application by an additional insured for a declaration that the insurer was required to defend the action and third-party claims against it.
Kelowna (City) v. AXA Pacific Insurance Co.,  B.C.J. No. 1287, June 1, 2010, British Columbia Supreme Court, C.A. Wedge J.
The City was named as an additional insured under a policy issued to the insured construction company, which was retained by the City to widen a road. An action naming the City and others as Defendants was filed by a bicyclist who was injured by falling overhead wires that allegedly became dislodged when a dump truck struck a utility pole. The accident occurred in the area where the insured had widened the road. A co-defendant filed a third-party claim against the City. The City brought an application for a declaration that the insurer was required to defend the action and third-party claim against it.
The Court relied on Monenco Ltd. v. Commonwealth Insurance Co.,  2 S.C.R. 699, where Iacobucci J. held:
The starting premise for assessing whether an insurer’s duty to defend has been triggered rests in the traditional “pleadings rule”. Whether an insurer is bound to defend a particular claim has been conventionally addressed by relying on the allegations made in the pleadings filed against the insured, usually in the form of a statement of claim. If the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence. This remains so even thought the actual facts may differ from the allegations pleaded. The “pleadings rule” was articulated by the British Columbia Supreme Court in Bacon v. McBride (1984), 4 C.C.L.I. 146, where Wallace J. stated, at p. 151:
The pleadings govern the duty to defend - not the insurer’s view of the validity or nature of the claim or by the possible outcome of the litigation. If the claim alleges a state of facts which, if proven, would fall within the coverage of the policy the insurer is obliged to defend the suit regardless of the truth or falsity of such allegations. If the allegations do not come within the policy coverage the insurer has no such obligation.
The Court may consider third-party notices when assessing the insurer’s duty to defend. Moreover, extrinsic evidence that has been explicitly referred to in the pleadings may be considered. Such extrinsic evidence may be considered in determining the substance and true nature of the allegations, and thus to appreciate the nature and scope of an insurer’s duty to defend. The Court found that the contract between the City and the insured was extrinsic evidence that could be considered as it was referred to in the pleadings.
As contractor under the contract, the insured was responsible for construction, means, methods and procedures and for coordinating various parts of the work. The third-party pleadings alleged that insufficient safety precautions were taken with respect to the placement of utility poles once the road was widened. The Court held that if true these allegations raised more than a mere possibility that liability would arise out of the operations of the insured. Under the contract, the insured had an obligation to insure the City for liability arising out of its operations. The policy provided coverage for such liability and thus, the insurer had a duty to defend the City.
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