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

Economical Mutual Insurance Company ("Economical") applied for a declaration that Aviva Insurance Company of Canada ("Aviva") was obliged to participate in the defence of claims made by three infant plaintiffs against Surinder Singh Rattan who was alleged to be liable for negligence as a social host.  Aviva was the insurer of the strata corporation where Rattan resided.  Rattan had a homeowner’s policy of insurance with Economical.  At issue was whether Rattan was an insured under the strata corporation’s policy with Aviva.

Economical took the position that Rattan was an insured by virtue of s. 150 and s. 155 of the Strata Property Act, S.B.C. 1998, c. 43 (“SPA”).  The SPA requires the strata corporation to obtain and maintain liability insurance to insure the strata corporation against liability for property damage and bodily injury.

The Court held that the strata corporation’s policy did not afford Rattan coverage except in respect of any business conducted by him and in respect of any liability he may have in his capacity as a stockholder in the strata corporation.  As neither constituted the basis for the claims against Rattan, Aviva had no duty to defend or to participate in the defence of any of the three actions brought against him.

This case was digested by Kim Yee and edited by David W. Pilley of Harper Grey LLP.

The issue before the Court was whether one of two parties had a duty to defend the Insured.  The Insured was in the business of providing motorcycle lessons to students.  It had a commercial insurance policy with Lloyd's Underwriters and third-party liability policies with ICBC covering its motorcycles and other vehicles.

The issue arose out of a claim advanced by a Ms. Robertson against the Insured.  In the statement of claim filed by Ms. Robertson, she alleged that while participating in a motorcycle course that was offered by the Insured, she fell and sustained injury while pushing the motorcycle of another student at the instruction and behest of the Insured.  She alleged that the accident was caused or contributed to by the negligence of the Insured.

ICBC argued that the injury claims did not arise out of the use or operation of a vehicle by the Insured and as a result, it had no duty to defend.  Lloyd's conceded for the purposes of the petition that the underlying action alleged that bodily injury was caused by an occurrence which would come within the policy's coverage, but argued that the policy's automobile exclusions operated to exclude coverage.

The Court found that the essence of Ms. Robertson’s claim against the Insured was that she fell and was injured when pushing a motorcycle as part of a motorcycle training course which was offered by the Insured for remuneration.  The Court concluded that it was an ordinary and well-known use of a motor vehicle to use it for instruction in the operation of a vehicle. In addition, the judge noted that it was not unusual to see a motocyclist pushing a motorcycle and training students on how to push a motorcycle was therefore part of the training provided by the school.  Thus, the Court held that ICBC had a duty to defend and Lloyd's did not.

This case was digested by Cameron B. Elder and edited by David W. Pilley of Harper Grey LLP.

Plaintiff landlord brought claim against the defendant tenant in relation to a sewer back up on the leased premises. The claim alleged various acts of non-compliance with the lease on the premises occupied by the tenant. The main allegations consisted of a claim that the tenant neglected or refused to repair damage to the tenant's work and improvements in accordance with the terms of the lease, that the tenant failed to maintain insurance in the name of the landlord, and that the tenant unilaterally and without notice reduced the insurance coverage to less than the full replacement value .

The tenant issued a third party claim against its insurer seeking an order that the insurer defend and indemnify it in respect of the main action.  The insurer brought a motion for summary judgment for the claim to be struck out on the basis that the policy does not cover allegations in respect of a failure to adequately insure the property of other persons. That is, the policy specifically excludes from coverage liability assumed in a contract for property that is owned, rented, or occupied by the insured. The tenant argued that the allegations, if looked at broadly, fell within coverage. The tenant relied on the well known principle that it is the "substance" of the claim and not the "legal labels" used that determies whether coverage is triggered. Therefore, the tenant argued that although the allegations against the tenant sounded in breach of the lease, if broadly interpreted, they supported a claim in negligence for property damage that triggered the insurer's obligation to defend.

The court first dismissed the tenant's claim for indemnity, finding that it had been brought prematurely. The duty to idemnify can only be determined after the facts in the underlying case have been proven at trial.

Next, the court addressed the duty to defend. It commented that the policy consisted of coverage for four types of liability: A. Bodily Injury and Property Damage Liability; B. Personal Injury Liability; C. Medical Payments; and  D. Tenant's Legal Liability. It went on to say that the tenant's argument appeared to mix up the various coverages and exclusions and omitted to refer to various exclusions. For instance, under coverage A, there were exclusions "a" to "t". The tenant only referred to exclusion "b" which excluded from coverage liability assumed under a contract or agreement. An exception under exclusion "b" is "an insured contract". The tenant omitted to cite exclusion "h" which excluded coverage for "property you own or rent". Exclusion "h" was critical since it excluded leased premises from coverage.  The tenant also referred to the Tenant's Legal Liability Broad Form which modified coverage D by expanding coverage from applying only to damage caused by fire to covering "property damgage". The tenant did not cite exclusions "a" to "i" under coverage D. However, under coverage D, exclusion "B" excluded assumption of liability in contract, and contained no exception for "an insured contract" (or a lease) as is the case with Coveage A. The court therefore held that the tenant "did not succeed in showing that a tenant's liability for breach of the terms of a lease agreement is covered" under the policy.

This case was digested by Natasha D. Morley and edited by David W. Pilley of Harper Grey LLP.

This was an appeal by an insurance company, Lloyd’s Underwriters, from a decision that it was the primary insurer with respect to defence costs incurred by two lawyers who were sued.  Goodman and Reeve, two lawyers at Cassels Brock, were sued in their capacity as directors of Markham General Insurance Company. Both Cassels Brock and Markham General had policies of insurance  covering directors' and officers' liability. Markham General had a directors' and officers' liability policy issued by AIG and American Home. Cassels Brock had an outside directorship liability policy issued by a Lloyd's syndicate.

The AIG policy expressly indicated that the insurer assumed no duty to defend. The Lloyd's policy contained a follow form clause that applied only where there was underlying insurance in which case the Lloyd's policy was to follow the terms of the underlying policy.  The judge hearing the application held that the follow form clause did not apply to the duty to defend and that that the Lloyds policy was the primary policy for the defence costs at issue.

The Court of Appeal dismissed the appeal.  The duty to defend is separate from a duty to indemnify.  A plain language reading of the policy reveals that the follow form provision relates to the indemnity coverage and has nothing to do with the duty to defend.  The AIG policy was clearly the primary policy and the Lloyd’s policy was excess insurance.  The duty to defend coverage in the Lloyd's policy is what is referred to as "drop down" coverage. Where there is no cover in the underlying insurance, the excess policy may provide cover to fill that gap. Where there is no underlying insurance or no duty to defend in the underlying policy, an excess insurer may well want to control or at least be represented in any litigation.  That does not convert the excess policy to a primary policy.  The follow form clause does not convert the duty to defend in the Lloyd's policy to a clause requiring only the reimbursement of defence costs.

This case was digested by Kim Yee and edited by David W. Pilley of Harper Grey LLP.

The Applicant was a Defendant in two actions that arose from property damage caused by asbestos contamination.  The Applicant sought a declaration that its Insurer was obliged to defend it.  The Applicant’s insurance policies contained an “Absolute Asbestos Exclusion Endorsement” which provided that the policy would not cover property damage, losses or expenses “caused by, resulting from or inconsequence of, or in any way involving asbestos, or materials containing asbestos in whatever for or quantity”.

In considering whether there was a duty to defend the Court looked beyond the labels contained in the Statements of Claim to determine the nature of the claim.  The Court noted that it must be determined whether the claims are entirely derivative in nature.  The duty to defend will not be engaged simply because the claim can be cast in terms of both negligence and an intentional tort.  It must be decided whether any of the properly pleaded non-derivative claims can potentially engage the indemnity provisions of the policy.

The Court ultimately concluded that the exclusion clause was clear and unambiguous.  Given that the exclusion clause applied, there was no duty to indemnify and therefore no duty to defend.  The Court distinguished the claims from the claim in Appin Realty Corp. v. Economical Mutual Insurance Co. (2008), 89 O.R. (3rd) 654 (Ont. C.A.) where it was found that there was a duty to defend.  In that case, the policy at issue had an exclusion clause relating to mould and the Plaintiff brought an action for damages arising from mould and bacteria.

This case was originally summarized by Kim Yee and edited by David Pilley of Harper Grey LLP.

Makowchik requested an order requiring RBC General Insurace Company ("RBC") to defend him in an action commenced against him by third party Beajan.  The issue was whether RBC had a duty to defend Makowchik and whether it had to pay for independent counsel engaged by Makowchik, if a duty to defend was established.

Makowchik asserted that the substance of Beajan's claim was that he was injured in an altercation in a bar either intentionally or negligently by Makowchik.  Negligence fell within the scope of the coverage of the policy.  RBC argued that the true nature of the pleadings, without any regards as to whether the claims had merit, had to be established and that the harm allegedly inflicted by the negligent conduct was derivative of that caused by the intentional conduct.  RBC argued that the negligence and the intentional tort arose from the same action and caused the same harm.

The judge found that the true nature of the pleadings were that Makowchik hit Beajan in the face with a glass, deliberately with full knowledge of his action thereby committing an intentional assault on Beajan.

RBC argued that Makowchik was covered against losses due to the compensatory claims of others for bodily injury which arise out of an accident or occurrence, and that the natural and probable consequences of a deliberate act cannot be said to have been caused by an accident.  RBC further argued that the policy expressly excluded claims for damages for bodily injury caused intentionally by the applicant at his direction or resulting from his criminal acts or omissions.  The judge agreed with the submissions of RBC and denied the application by Makowchik.  Since it was found that RBC did not have a duty to defend Makowchik, it was unnecessary to consider whether independent counsel should be appointed to defend Makowchik.

This case was originally summarized by Neil J. MacDonald and originally edited by David Pilley.

South Caribbean Supplies ("South Caribbean") sued Keith Hart Holdings ("Keith Hart") for damages to poles that were being transported from New Westminster to the Yukon Territories.  The poles, valued at $18,000 were damaged in an accident to the extent that they were of no value for the purpose they were intended. South Caribbean had to purchase other poles to replace the lost ones.  Keith Hart was not able to transport the new poles, so South Caribbean paid a third party $41,000 to carry the replacement poles and demanded from Keith Hart those costs and the cost of the replacement poles ($20,000). Keith Hart refused to pay either amount.

Keith Hart held a policy with Intact Insurance Company ("Intact"), which stated in part that the policy did not cover liability or expense for delay, loss of market or loss of use or any other indirect or consequential loss of any kind.

Intact sought a declaration that this policy required it to only provide a defence to the action with respect to direct damage and not for any liability for damages relating to consequential damage.  Burnyeat J. stated that it was clear that at least some of what was claimed by South Caribbean was covered by the policy and that it was necessary for Intact to defend those claims. However, Intact could not call upon Keith Hart to obtain its own independent counsel with respect to claims that potentially fell outside of the policy.

Keith Hart was not entitled to be represented by separate counsel in court in the action commenced by South Caribbean.  Citing Nicholls v. American Home Assurance Co., [1990] 1 S.C.R. 801, Burnyeat J. noted that while it was not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend, there was still a duty on Intact to defend the entire action of South Caribbean.  Parties would be subject to an assessment after the action was concluded with respect to costs which were payable by Intact and costs which were payable by Keith Hart.

Burnyeat J. also stated that it was not clear at this stage whether the costs of transporting replacement poles would be determined as being a direct physical loss, or whether an exclusion for liability or expense or any other indirect or consequential kind of loss would apply. The Judge, citing Black's Law Dictionary, noted that direct damages are damages that follow immediately upon the act done.  Damages which arise naturally or ordinarily from breach of contract; are damages which, in the ordinary course of human experience, can be expected to result from breach.  Here it may well be that the trier of fact will conclude that additional carriage charges would be incurred whether or not Keith Hart could undertake the carriage of the replacement poles because such costs would be within the reasonable contemplation of South Caribbean and Keith Hart.  This would ultimately be the determination of the trial judge, and as such the petition of Intact Insurance was dismissed.

This case was originally summarized by Neil J. MacDonald and originally edited by David Pilley.

Appeal by insurer from an order to defend its insured in a third party proceeding. The plaintiff was injured in a motor vehicle accident. He was riding as a passenger  in a motor vehicle which was struck by another vehicle operated by defendant Tarrabain and owned by defendant Erikson Nissan. Negligence was alleged in the Statement of Claim against both defendants. Erikson filed a Statement of Defence admitting it was the owner of the vehicle but denying that the vehicle was operated with its consent. Erikson then issued a third party notice against the insured, the father of  Tarrabain. Erikson alleged that the insured brought the vehicle to Erikson for servicing and signed a service loan agreement

The insurer admitted that the loaned vehicle qualified as a temporary substitute vehicle under the policy, entitling the insured to indemnification from its use. However, it argued that the third party notice claimed indemnity on the basis of contract, the service loan agreement, and did not involve liability arising from the ownership, use or operation of a motor vehicle. The chambers judge rejected this submission, finding that the Third Party notice had to be considered in conjunction with the Statement of Claim, which alleged negligence. The chambers judge found a duty to defend. The insurer appealed.

On appeal, the court found that the chambers judge had correctly considered the Statement of Claim alongside the Third Party Notice. Although the Court of Appeal acknowledged that it had previously found that a Statement of Defence should not be considered when deciding whether a duty to defend exists, it noted that the concern that existed there, of the insured drafting the pleadings in a way to extend coverage, did not exist in the case at bar. Further, pursuant to Rule 65(2) of the Alberta Rules of Court, the Statement of Claim is appended to the Third Party Notice, and the Third Party Notice makes express reference to it. The Court of Appeal further found that the Statement of Claim alleged that the plaintiff’s injuries arose out of the ownership, use, or operation of a motor vehicle, and therefore a duty to defend existed. The appeal was dismissed.

This case was originally summarized by Natasha Morley and originally edited by David Pilley of Harper Grey LLP.

Under a contract between the provincial crown as represented by the Minister of Transportation (the “MOT”) and a general contractor for the repair and paving of a highway, the contractor was required to obtain insurance coverage of one million dollars ($1,000,000) to protect the MOT for any claims arising from acts or omissions by the contractor or its agents during the execution of the contract.  This insurance was provided by the Canadian Surety Company (“CSC”).  The MOT was also insured under a separate comprehensive general liability policy issued by Kansa General International Insurance Company (“Kansa”).  In a separate action, an individual was awarded damages against the contractor for injuries he suffered when his vehicle left the pavement on the highway.  Just prior to the accident, the MOT had received information from an inspection regarding the highway where the accident occurred but had failed to act on the informaiton.  In third party proceedings, the MOT was ordered to indemnify the contractor for 50% of the damages due to its negligence in failing to act on that information.  The MOT and Kansa subsequently brought this action seeking a declaration that CSC was obliged to defend the MOT in the accident litigation and the third party proceedings, to pay the costs associated with the MOT's counterclaim against the contractor, to indemnify the MOT in respect of the damages awarded in the accident litigation, and to indemnify Kansa for all amounts previously paid to satisfy the claims asserted by the contractor and the injured party.  The trial judge found that the certificate of insurance issued by CSC  provided coverage only for liability claims where the MOT was liable for some act or omission of the contractor but not for liability arising independently of the contractor’s actions.  The MOT and Kansa appealed the decision.

The Court of Appeal dismissed the appeal.  It found that the specific wording of the certificate of insurance and the CSC policy limited the coverage available to the MOT under that policy to claims based on the MOT's vicarious liability for the acts and omissions of the contractor and its representatives.  As the liability findings made against the MOT in the accident litigation did not engage vicarious liability, but rather acts or omissions of the MOT's own personnel, they did not fall within the scope of the CSC policy.

The Court of Appeal also noted that the MOT had sought and obtained its own comprehensive general liability coverage through Kansa, which would have been unnecessary had the parties intended or expected the CSC policy to respond to independent negligent acts by the MOT.  The court upheld the trial judge’s finding on the evidentiary record that it “was the commercial expectation of the parties and the commercial reality of their legal relationship” that the CSC policy only protected the MOT against liability for the contractor’s actions and not for independent negligent acts of the MOT.

Finally, the Court of Appeal upheld the trial judge’s finding that the MOT’s and Kansa’s decision to delay in pursuing the claim against CSC until after final judgment in the accident litigation was prejudicial to CSC and as a result now precluded Kansa and the MOT from pursuing the claim.

This case was originally summarized by Emily M. Williamson and edited by David W. Pilley of Harper Grey LLP.

The insured owned a pick-up truck insured by the insurer. His son was an 'excluded driver' under the policy. His son used the truck, accompanied by another driver, and was involved in a motor-vehicle accident. Both the insured and his son were sued by the occupants of the other vehicle.

The insurer brought an application for a declaration that it had no duty to defend or indemnify either the insured or his son. The insurer argued that there was no coverage on three grounds: (1) The son was an 'excluded driver'; (2) The son drove the truck on public roads without the insured's consent; and (3) The insured allowed the son to drive while in breach of the conditions on his G-1 driver's license.

On the first ground, the court agreed that the insurer had no duty to defend or indemnify the son, as he was clearly listed as an 'excluded driver'. However, the insured argued that he understood this to mean that his son had no coverage, not that he was not himself protected from third party liability. The court questioned whether the insurer had taken adequate steps to bring the coverage implications to the insured's attention. The form that was originally sent to the insured, clearly explaining the implications of having an excluded driver on the policy, only listed another vehicle owned by the insured, not the truck in question. Although the insurer sent a revised form, listing the truck, the insured had left the country and claimed he did not receive it prior to the accident. Since the evidence was unclear, the court was not prepared to make a finding on the evidence that the insurer had taken all the appropriate steps to ensure the insured fully understood the coverage implications of having his son listed as an 'excluded driver'. The court directed the trial of an issue on the 'excluded driver' endorsement.

On the second ground, the court found that although both the insured and his son had sworn affidavits that the son did not have express consent to drive the vehicle, he did have implied consent. Email evidence suggested that when the insured found out that his son was using the truck on some public roads, he simply told his son to "be careful."  The court found that, at the very least, the insured had acqueised and had impliedly consented to his son using the truck on public roads.

On the third ground, the court found that the insured did not allow his son to drive while unauthorized to do so. The son had his G-1 license, which required him to have another driver in the vehicle with more than four years driving experience. At the time of the indicent there was another driver with the son, but he had less than the requisite experience. The court found that it could not be stated that the insured allowed his son to drive his truck in breach of the liscensing requirements since he could not have known that his son's passenger lacked the requisite experience.

The court directed a trial of an issue under Rule 38.10(1)(b) with regard to the coverage implications of the 'excluded driver' endorsement in relation to the insured. It also declared that the son was not covered and that the insurer had no duty to defend or indemnify him in the upcoming actions.

This case was originally summarized by Natasha D. Morley and originally edited by David W. Pilley.