Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

The Defendants were involved in building an addition to the church building owned by the Plaintiff society. The Defendants were alleged to have caused a fire during the course of the building project which burned the church down. The Plaintiff society settled with its insurer for indemnity for the damage caused by the fire, and the insurer commenced a subrogated action in the name of the Plaintiff society against the Defendants. The Defendants then applied for a declaration that they were insureds under the contract of insurance between the Plaintiff society and its insurers, pursuant to the Commercial Policy and Builders Rider, and thus entitled to indemnification against subrogation.

The Court held that there were three stages to the Defendants' application: the first was the determination of whether the insurers bore a duty to defend the Defendant; the second and third were the indemnification and subrogation issues, the determination of which the Court held would require a trial. The duty to defend, however, could be determined on the application. The Court found that the duty to defend and to indemnify against the costs of an action does not depend upon the judgment obtained in the action. Accordingly, the duty to defend is much broader than the duty to indemnify against a judgment. The Court held that there was a reasonable probability that the Defendants would be found to be insureds under the Plaintiff society's insurance policy, and therefore the insurer was compelled to provide the Defendants with a defence.

This was an appeal involving two issues. The first related to the scope of an exclusion clause and the motion judge's determination that it did not absolve the insurer from its duty to defend the insured against the insured's claim for bodily injury arising from his exposure to mold and/or bacteria. The second related to the motion judge's determination that the insured could require the insurer to retain counsel of the insured's choice.

On the first issue the insurer relied on the clause in the policy under the heading "Common Exclusions". That provision provided as follows:

"This insurance does not apply to:

7. FUNGI AND FUNGAL DERIVATIVES

(a) "bodily injury", "property damage", "personal injury", or Medical Payments or any other costs, loss or expense incurred by others, arising directly or indirectly, from the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, presence of, spread of, reproduction, discharge or other growth of any "fungi" or "spores" however caused, including any costs or expenses incurred to prevent, respond to, test for, monitor, abate, mitigate, remove, cleanup, contain, remediate, treat, detoxify, neutralize, assess or otherwise deal with or dispose of "fungi" or "spores"…

This exclusion applies regardless of the cause of the loss or damage, other causes of the injury, damage, expense or costs or whether other causes acted concurrently or in any sequence to produce the injury, damage, expenses or costs."

The motion judge found that this exclusion, including the "concurrent exclusion" clause, did not absolve the insurer of its duty to defend because the plaintiff had pleaded that his injuries arose from mould and bacteria and if it were found that the injuries were due solely to bacteria (a non-excluded peril), the exclusion clause would not apply.

On appeal, the insurer argued that the motion judge failed to consider the effect of the word "alleged" within s. 7(a) of the exclusion. According to the insurer, the effect of that language was to absolve the insurer of a duty to defend in any case where bodily injury from mould is alleged, even if combined with other causes of bodily injury, such as bacteria. The insurer submitted that the effect of the clause was that the duty to defend was narrower than the duty to indemnify.

The court disagreed with the insurer's position finding that the language in clause 7(a) is both unclear and ambiguous in its effect. The court found that a plain reading of the provision did not support the insurer's position. The court further found that the insurer's position "stands on its head" the general proposition that the duty to defend is broader than the duty to indemnify. The court found that if the clause was meant to convey that the insurer's duty to defend is narrower than its duty to indemnify then clear and unambiguous language would be required. 

Because of the issues with respect to coverage both the insured and insurer sought to appoint the counsel of their choice. The motion judge had referred to the principle that an insurer's right to control the defence is not absolute citing Brockton (Municipality) v. Frank Cowan Co. (2002), 57 O.R. (3d) 447 (C.A.). The motion judge found that the insured's counsel was competent and experienced and should be retained by the insured to defend the action at the insurer's expense. On appeal the insurer suggested that in order to meet the mutual concerns expressed by both sides, a third approach would be to agree on independent counsel. The Court of Appeal was not prepared to interfere with the trial judge's exercise of his discretion.

The Insurer brought an application for a declaration that it had no duty to defend or indemnify the Respondents. The Respondents were insured pursuant to a home owner's policy of insurance. That policy excluded claims arising from the ownership, use, or operation of any motorized vehicle. A 12-year old girl, the sibling of the Insureds, was injured while operating an ATV owned by one of the Respondents. The Court found that the Insurer had waived any right to deny a duty to defend and could not now repudiate that position. The waiver occurred in a letter which was sent to the Respondents one month after the Statement of Claim was issued. The letter advised that the Insurer would defend the action. The Court found that a subsequent letter delivered approximately five months later in which the Insurer advised that they would not defend the action did not have the effect of removing the waiver.

The Insurer issued a "Prime Hard Hat" liability insurance policy to the Insured, which provided for commercial general liability insurance and commercial umbrella coverage insurance (the "Policy"). The Policy insured "property damage" up to a limit of $2,000,000, with a deductible of $5,000 for each "occurrence". The umbrella policy insured "property damage" up to a limit of $8,000,000, with a self-insured retention of $10,000 for each "occurrence".

In the underlying action, the Plaintiff claimed damages for the cost of correcting deficiencies in the structure of a building, lost productivity and the cost incurred in investigating the building deficiencies. The Plaintiff entered into a contract with the Insured, the General Contractor on the project, for the construction on the Plaintiff's property of a steel processing facility, which involved the erection of five overhead cranes. The Insured subcontracted with Spencer Steel Ltd. to supply the structural steel and to build several runways to support the overhead cranes. Larco Industrial Services Ltd. was retained to supply, install, relocate, retrofit and commission the five overhead cranes. The Plaintiff began to notice vibrations when the cranes were in use. As the operation of the facility proceeded, improperly aligned crane runways, shifting crane runways, cracked concrete block walls and broken or loose runway bolts were discovered. The Plaintiff commenced an action against the Insured and other defendants involved in various capacities in the construction of the building for general damages for breach of contract and negligence.

For damage to be "property damage" under the Policy, the damage had to be to work other than that of the General Contractor. Damage to work of the General Contractor was excluded under the Policy. For the incident that resulted in the damage to be an "occurrence" under the Policy, the damage had to be to work other than what the General Contractor had contracted to perform.

The Insured argued that in this case it was appropriate to look outside the Statement of Claim to determine the true nature and substance of the pleadings. The Insured took the view that the Court could look to extrinsic evidence, other pleadings and a response to a Demand for Particulars to determine the substance of the pleadings. The Insured sought, with the assistance of external sources, to support its argument that Larco performed its work under an independent contract and that the damage to the Plaintiff's property resulted from Larco's work, which was outside the work the Insured performed in constructing the building.

The Insurer took the position that no claim for damage to work outside the work the Insured contracted with the Plaintiff to do could be inferred from the Plaintiff's pleadings. In the Insurer's view, it was not necessary, nor would it be appropriate to look outside the Statement of Claim to determine whether coverage was triggered.

The Court accepted the Insurer's position that the substance of the Plaintiff's allegations against the Insured was directed at the work of the Insured and contractors and not against work outside the Insured's contract with the Plaintiff. The Court found that the question whether Larco was a subcontractor of the Insured or had an independent contract with the Plaintiff was contentious and it would not be appropriate to answer that question on a preliminary determination of coverage. Therefore, the Court declined to consider any pleadings other than those directed against the Insured.

Denis Potvin was injured while driving a go-kart on a track owned and operated by Pineland Amusements Ltd. ("Pineland") He lost control of his go-kart, he alleged, after colliding with a go-kart driven by his father, Roland Potvin (the "Insured"). Denis's mother and Litigation Guardian, Adams, commenced an action against Pineland and the Insured for damages for injuries suffered by Denis. Pineland filed a cross-claim alleging that the Insured caused or contributed to the injuries of his son. The Insured had an automobile insurance policy with the Insurer (the "Policy"). The Insured issued a Third Party Claim against the Insurer, stating that it had a duty to defend and indemnify him in the main action and in the cross-claim by Pineland. The Insurer issued a Statement of Defence to the Third Party Claim alleging that the Insured's policy did not cover the go-kart. The Insurer brought a motion seeking a determination as to whether the Policy covered damages for injuries from the go-kart accident and whether the Insurer had a duty to defend. The Motion Judge answered both questions in the affirmative. The determination of both questions turned on whether a go-kart was an "automobile".

The Ontario Court of Appeal found that the Policy did not cover the claim made by Adams and that it did not cover damages for injuries resulting from a go-kart accident in the circumstances of the case. The Insurer did not have a duty to defend the Insured in the main action or in the cross-claim by Pineland. The Third Party Claim was dismissed with costs.

The question of whether a go-kart is an automobile was decided pursuant to the three-part test set out in Grummet v. Federation Insurance Co. of Canada (1999), 46 O.R. (3d) 340 (S.C.J.):

"1. Is the vehicle an 'automobile' in ordinary parlance?

If not, then,

2. Is the vehicle defined as an 'automobile' in the wording of the insurance policy?

If not, then,

3. Does the vehicle fall within any enlarged definition of 'automobile' in any relevant statute?"

An affirmative answer to any of these questions leads to the conclusion that the vehicle is insured by the standard Ontario automobile insurance contract.

The Motions Judge decided that a go-kart is not an automobile in ordinary parlance and that the definition of "automobile" in the Policy did not include go-karts. These findings were not challenged on appeal and the only issue was whether the go-kart fell within any enlarged definition of "automobile" in any relevant statute.

The governing definition is set out in section 224(1) in Part VI of the Insurance Act, R.S.O. 1990, c. I.8. Part VI deals with automobile insurance and section 224(1) defines "automobile" as follows:

"(a) a motor vehicle required under any Act to be insured under a motor vehicle liability policy, and

(b) a vehicle prescribed by regulation to be an automobile."

Section 224(1)(b) did not apply and therefore, under section 224(1)(a), a vehicle that is neither an automobile in ordinary parlance nor specifically defined to be one under a policy will be an "automobile" if it is required to be insured under a motor vehicle liability policy.

The Motions Judge concluded that because it was possible for a go-kart to be driven on a highway and, notwithstanding the fact that it would be illegal to do so, section 2 of the Compulsory Automobile Insurance Act prohibits the operation of a motor vehicle "on a highway unless the motor vehicle is insured under a contract of automobile insurance". On that basis, the Motions Judge found that a go-kart is an automobile.

The Court of Appeal disagreed with the Motion Judge's reasoning. The Court of Appeal found that this particular go-kart was not operated on a highway, but on a private go-kart track. Therefore, the question whether the go-kart would require motor vehicle insurance if it were illegally driven on a highway did not arise. The proper question was whether it required motor vehicle insurance at the time and in the circumstances of the accident. It did not and therefore was not "automobile" within the scope of the Policy.

The Third and Fourth Excess Insurers provided coverage to the Insured Company under policies that are part of what is known as a "ladder" scheme. The Primary Policy and the First and Second Excess policies were exhausted as a result of the settlement of an action initiated in the State of Delaware against the Insured Company.  The Third and Fourth Excess insurance policies provided coverage of the kind generally known as "follow form". In other words, the Insurers agree to provide insurance coverage excess of the underlying policies "in accordance with and subject to the same warranties, terms, conditions, exclusions and limitations as are contained in or as may be added to the Primary Policy. The Third and Fourth Excess Insurers took the position that there was either no coverage available to the Insured Company, or there were exclusions applicable with respect to the claims for which the Insured Company sought indemnification by virtue of the terms of the policies of insurance.

The coverage provided by the policies included "Organization Insurance" for loss of any Organization insured pursuant to the policies arising from a) a Securities Claim; b) an Oppressive Conduct Claim; or c) a Canadian pollution claim made against such Organization for any Wrongful Act. It was not disputed that the Insured Company came within the definition of the word "Organization". The Court considered the relevant definitions in the policies, including "Securities Claim", "Oppressive Conduct Claim" and "Wrongful Act", and accepted the Insurers' submission that there had been no finding of oppressive conduct on the part of the Insured Company for which indemnity under the policies would be available. Accordingly, the Court found that "sufficient doubt" had been raised that defence costs should not be required to be paid by the Insurers, at least at the time of the hearing of this application. 

The Court further held that even if the coverage issue were certain, it was unclear whether defence costs would be payable since the policies in issue did not contain a duty to defend clause and only spoke to indemnity.  The Court accepted the proposition that Canadian law is clear that the duty to defend is entirely contractual; i.e. there is no duty to defend unless the policy provides that there is one. However, this matter was left open since there was "at least the potential for a different conclusion if oppression was ever established."

The Court also declined to grant the relief sought on the basis that the claim for defence costs was premature.

The insurer, Aviva Insurance Co. of Canada, brought an application seeking a declaration that Pizza Pizza was not entitled to coverage under a commercial general liability policy for a claim brought by a plaintiff pedestrian who was seriously injured when a Pizza Pizza delivery driver struck her while she was crossing the street. Pizza Pizza also brought an application seeking a declaration that it was entitled to coverage and that Aviva was obliged to defend it in the underlying action. Aviva sought a further declaration that ING Canada was obliged to defend Pizza Pizza under a term of a standard non-owned policy for claims raised against Pizza Pizza in the action. 

The Court found that the pleadings gave rise to the possibility that the Plaintiff's injuries were caused by Pizza Pizza's delivery policy in failure to screen drivers' driving records and that claim was independent of the claim that involved the use or operation of an automobile. The Court found that Aviva did not meet its burden to show that all of the possibile scenarios pursuant to which the injury may have occurred were claims arising from the use of an automobile and none of those scenarios also involved a concurrent nonautomobile-related cause. The Court found that Aviva was required to defend Pizza Pizza in the action under its CGL policy on the nonautomobile-related claim and ING had a duty to defend Pizza Pizza under its non-owned policy on the automobile-related claims.

The Town was insured under a commercial general liability policy issued by one Insurer with a second Insurer providing excess commercial liability insurance. Both of these policies were in effect at the material time and the wording with respect to coverage in both policies was the same. 

The Third Party brought an Action against the Town alleging damages associated with the loss of possession of a parcel of land owned by the Town. The Insurers denied that they had any duty to defend the Town on the basis that the true nature of the alleged claims were for breach of contract and therefore excluded from coverage. In deciding the issue of whether the Insurers had a duty to defend, the Court was required to consider several sub issues including, whether the Third Party claim had been properly pleaded, whether the insuring agreement and the policies covered contractual liability, whether any of the properly plead claims were derivative in nature, and whether any of the properly plead non derivative claims were covered by the policies. 

The Court considered the general principles of contractual interpretation and the principles specific to insurance contracts. In particular, the Court reiteretated the principle that when interpreting any written contract the object is to give effect to the intention of the parties and the specific purpose of insurance, that it is a mechanism for transfer of fortuitous risks so that usually the only losses which are covered are unforeseen or accidental. The Court then considered the cases, including the Supreme Court of Canada's decision in Monenco Ltd. vs. Commonwealth Insurance Co., 2001 SCC 49, which provide that an insurer’s duty to defend is triggered by the pleadings. The Court noted that “if there is a mere possibility that the facts alleged in the Statement of Claim would require the Insurer to indemnify the Insured for the claim, the duty to defend is triggered.” 

The Court followed the three step process set out by the Supreme Court of Canada in Non-Marine Underwriters, Lloyd's of London vs. Scalera, 2000 SCC 24 to determine whether or not the Third Party’s claim could trigger indemnity. In doing so, the Court found that the requisite elements for a claim in breach of contract were made out in the Amended Statement of Claim, as were the requisite elements for the claim in negligent misrepresentation and for proprietary estoppel. On the other hand, the Court found that the Third Party’s allegations fell short of being capable of establishing a claim in trespass and/or wrongful eviction, which the Court noted was not a claim in and of itself as much as it was a fact establishing damage arising from other claims.

The Court then considered whether the viable claims for breach of contract, negligent misrepresentation and propriety estoppel were expressly excluded from coverage under the policies. In doing so, the Court referred to case authority which had established that the common phrase in liability insurance policies “liability imposed by law” was not intended to include contractual liability. Next, the Court engaged in an extensive review of the jurisprudence interpreting the exclusion for liability assumed by an insured under contract or agreement and found that this included the assumption by an insured of tort liability on behalf of another.

An action was brought by a third party plaintiff for injuries sustained in a slip and fall accident, which occurred at premises of the Owner. The action was against both the Owner and a landscaping company, which had a contract with the Owner to perform services at the premises, including winter maintenance.

The landscaping company (the "Insured") had obtained a general liability insurance policy from the Insurer, which included coverage for bodily injury and death, among other things, caused by the Insured’s activities and operations.

The Owner’s position on the motion for summary judgment was that the Certificate of Insurance between the Insurer and the Insured added the Owner as an insured and the Insurer therefore had a duty to defend the Owner with respect to any claim arising out of the alleged negligence of the Insured. The Owner also argued that because the Insurer would be required to defend it in respect of claims against the Insured, this would open the door and require the Insurer to defend the Owner against claims which were outside of the policy’s coverage.

The Court dismissed the Owner’s motion for summary judgment on the basis that the Owner was covered and was already being defended by the Insurer for the plaintiff’s claims of negligence against the Insured contractor with respect to winter maintenance. However, the Owner was not covered, as a named insured, for acts of negligence arising from its operations as an occupier of the premises as these claims were separate and distinct claims of liability, and were unrelated to the Insured’s acts.

The petitioning general contractor, Progressive Homes Ltd. ("Progressive"), sought a declaration that the Respondent liability insurance company, Lombard General Insurance Co. of Canada ("Lombard"), was required to defend it in four actions. The four underlying actions were brought against Progressive by the BC Housing Management Commission ("BC Housing"), which alleged "leaky condo" type defects in the construction of four condominium developments. Lombard argued it had no duty to defend because the claims made in the underlying actions did not fall within the initial coverage grant under the insurance contract, as they did not relate to a claim for personal injury or damage to third party property outside the building.

The sole issue for determination was whether Lombard, under the terms of the policies, was obligated to defend Progressive with respect to the underlying actions. The Court relied on Swagger Construction Ltd. v. ING Insurance Company of Canada which held that any damage to other parts of the building resulting from the contractor’sdefective workmanship was not covered by the policy based on the principle that a CGL policy is not intended to be a performance bond. Furthermore, any defect in the structure is a defect in the quality of the whole and it is artificial to treat a defect in an integral structure as a dangerous defect liable to cause damage to "other property".

 In the result, the Court found that the allegations in the underlying actions did not allege "property damage" because the alleged damage was to the very building Progressive was contracted to build. Accordingly, coverage under the insurance contracts could not be triggered, Lombard was under no duty to defend Progressive and the application was dismissed.