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

The Insurer appealed a decision dismissing its counter-claim against the Respondents, Leanne Giilck and Discount Auto Appraisals, in which it was found that it had no right to compel the Respondent, Rehman Baig (the "Insured"), to attend for an examination under oath pursuant to Statutory Condition 6(4) of the Insurance Act.

The Ontario Court of Appeal allowed the appeal based on the finding that the Statutory Condition does not cease to operate once litigation is commenced and that the scope of examination extends to all matters material to the Insurer's liability, and extent thereof, which the Insurer has an objective and reasonable basis to explore.

The Insurer insured the Insured's 1999 BMW M3 convertible beginning in 2002. The insurance included an endorsement that insured the vehicle for a specified value. To obtain that coverage, the Insured submitted an appraisal report signed by Giilck of Discount Auto Appraisals. Upon receiving the appraisal, the Insurer provided the Insured with an endorsement on the vehicle in the amount of $71,300.

The vehicle was damaged in a collision on December 10, 2004 and the Insured submitted a Proof of Loss to the Insurer claiming the full amount specified in the endorsement. The Proof of Loss indicated that the vehicle had been purchased on February 23, 2002 for $12,500 U.S. "as per salvage price". The Insurer had also learned that Giilck was the common law partner of the Insured and that together they operated Discount Auto Appraisals.

The Insurer required the Insured to attend an examination under oath pursuant to Statutory Condition 6(4). The Insured attended with counsel who refused to allow the Insurer to ask any questions about how the amount of the appraisal had been determined. He took the position that the examination was restricted to the particulars of the claim and did not extend to the appraisal report, which he regarded as a prior underwriting event.

The Insured later commenced an action against the Insurer claiming damages for loss of the automobile, together with punitive, exemplary and aggravated damages of $100,000 each. The Insurer then filed a Statement of Defence alleging that the appraisal prepared by Discount Auto Appraisals had been greatly overstated due to the poor condition of the BMW at the time and that the Insured, Giilck and Discount Auto Appraisals had misrepresented the value of the BMW. The Insurer counter-claimed against the Insured, Giilck and Discount Auto Appraisals for misrepresentation and detrimental reliance.

The Insurer brought a motion for an order compelling the Insured to attend to be examined under oath pursuant to Statutory Condition 6(4) and to answer questions relating to the initial valuation of his vehicle. In response, the Insured, Giilck, and Discount Auto Appraisals sought summary judgment dismissing the counter-claim.

The Motions Judge found that the statutory examination under oath was redundant because the Insurer had a right to examine the Insured for discovery in the lawsuit. The Motions Judge took the view that once the relationship between an insurer and insured becomes adversarial, or at least once a lawsuit is commenced, the examination under Statutory Condition 6(4) is no longer available to the insurer.

The Court of Appeal disagreed finding that there are no words in the provision to indicate that an insurer's right to examine an insured is limited to the situation in which the relationship is not adversarial. The Court of Appeal held that the statutory condition must be applied according to its plain terms. An insured cannot evade the plain requirement to submit to an examination by simply commencing an action. The Court of Appeal found that the potential for redundancy can be eliminated because the Court, in controlling its own procedures, is able to consider questions that have already been asked and answered on a statutory examination improper on a subsequent examination for discovery.

The parties agreed that the scope of the examination is defined by the term "the matters in question", though those words are used in Statutory Condition 6(4) to refer to the Insured's obligation to produce relevant documents in the examination. The Motions Judge took the view that the scope of the statutory examination was limited to the Insured's claim for insurance benefits. In the Motions Judge's view, the Insurer had agreed to the value of the vehicle when the policy was issued; accordingly, its value was not a "matter in question" in respect of the Insured's claim for benefits when the vehicle was damaged two years later.

The Court of Appeal found that the purpose of the statutory examination is to provide insurers with the opportunity to obtain the knowledge of facts necessary to enable them to determine their obligations and to protect them against false claims. Questions that are material to the Insurer's liability and the extent thereof are within the scope of the statutory examination. Whether the initial appraisal of the vehicle was fraudulent is a matter that is relevant to the Insurer's defence to the Insured's action. Therefore, as the Insurer had an objective and reasonable basis for suspecting that the initial appraisal was fraudulent, the Insured was obligated to submit to examination about it.

The Plaintiff was a passenger is a motor vehicle driven by Mr. Larkin. Mr. Larkin swerved to avoid a dog, owned by Mr. Hogeterp, and crashed into a telephone pole, causing the Plaintiff to suffer a severe brain injury. An action was commenced by the Plaintiffs against Mr. Larkin and Mr. Hogeterp. In August of 1997, Lombard Insurance entered an Appearance on behalf of Mr. Hogeterp and retained an independent adjuster to investigate the claim. The adjuster obtained two statements from the Defendant Mr. Larkin. Mr. Hogeterp's counsel provided the statements of Mr. Larkin to Mr. Larkin, and to the Plaintiff. The Plaintiff brought an Application seeking production of Lombard Insurance's entire adjuster's file. 

The Chambers Judge ruled that there would have been no waiver of privilege had Mr. Hogeterp's counsel released the statements to Mr. Larkin, as he was the maker of the statements, and was therefore entitled to the statement. The trial Judge relied upon Hanna v. Maritime Life Assurance (1995), 137 N.S.R. (2d) 339 (S.C.) for this proposition. However, the Chambers Judge found that the Plaintiff and Mr. Larkin were adverse in interest and as such, the disclosure of the statements waived privilege over the statements, and all other relevant documents dealing with the same subject matter. The Chambers Judge relied upon Walsh v. Smith (1999), 180 N.S.R. (2d) 173 for guidance with respect to the extent of the waiver of privilege. The Chambers Judge ordered that Mr. Hogeterp had to disclose documents that had any reference to the statements and the circumstances under which they were obtained. However, these references could be severed from the remaining filed documents. 

In determining what documents were privileged and what documents were not privileged, the Chambers Judge determined that the most appropriate method would be to examine the entire file over which privilege was claimed and make an individual assessment of each document.

The Plaintiff brought an application to amend its Statement of Claim seeking damages for business interruption; mental distress on behalf of the corporate directors; and punitive damages for loss of reputation and loss of business incurred by the Plaintiff corporation. In the underlying action, the Plaintiff, 539091 Ontario Ltd. (c.o.b. Len’s R.V. Sales) ("Len’s R.V. Sales") sued its insurer, Allianz Insurance Co. of Canada ("Allianz") alleging bad faith after a fire broke out at the corporate premises. Mr. and Mrs. Ager were the shareholders and directors of the Plaintiff Len’s R.V. Sales.

The Defendant, Allianz opposed the amendments on the following grounds: counsel for the Plaintiff had already confirmed there would be no claim for business interruption loss which constituted an admission that should not now be withdrawn by the amendment; the corporation’s directors were not named insureds and therefore did not have any claim under the insurance policy; and a claim for punitive damages had already been pleaded in the Statement of Claim.

The first issue was whether the statement by Plaintiff’s counsel that there would be no claim for business interruption loss constituted an admission. Plaintiff’s counsel submitted the statement, contained in a letter following a request made at an examination for discovery, was not an admission as it was not made by Mr. and Mrs. Ager, the company’s shareholders. The Court found that the solicitor’s statement constituted an informal admission that was not binding on the Plaintiff who gave it. The Defendant would not suffer prejudice if the admission was withdrawn and the amendment was permitted.

The second amendment sought was to add a claim for damages for the mental distress of Mr. and Mrs. Ager caused by the nature of the claim and the handling of it by the Defendant insurer. The Defendant argued that this claim was not tenable at law because the shareholders were not named as insureds under the Policy. The Court found that Mr. and Mrs. Agers were not named insureds under the Policy. However, it could not be said that there was no contractual nexus between the Agers and the insurer given the limited scope of coverage extended to officers and shareholders. Whether it is sufficient to ground the duty of care is an issue that should be left for trial to be decided on a full evidentiary record.

 Accordingly, the Plaintiff was granted leave to amend its Statement of Claim to seek damages for mental distress on behalf of the Agers as officers of the Plaintiff corporation.

Ms. Arnold was injured in a motor vehicle accident. She commenced an action against Ms. Davidson and Ms. Davidson’s insurer, Enterprise Rent A Car Canada Ltd. ("Enterprise"). In addition, Ms. Arnold commenced an action against Wawanesa Mutual Insurance Co. ("Wawanesa") under an SEF 44 family protection endorsement, which would provide Ms. Arnold with insurance benefits to the extent that the damages in the action that she commenced against Ms. Davidson were not covered by Ms. Davidson’s insurer, Enterprise.

Wawanesa brought an application to compel Enterprise to produce a copy of its Certificate of Insurance [ with Ms. Davidson ] in the action that Ms. Arnold had commenced against Wawanesa. The Court noted that Enterprise was not a party in that action and as such, the determination of disclosure of the Certificate of Insurance was governed by the Court being satisfied that the production of the document was necessary for disposing fairly of the proceedings or of saving costs, and was not injurious to the public interest. Enterprise opposed production of its Certificate of Insurance relying upon Peters and Fireman’s Fund Co. of Canada (1984) 45 O.R. (2d) 149 (O.N.H.C.) and Lamie v. Royal Insurance Co. of Canada [1994], N.S.J. No. 433.

Wawanesa argued that although many provinces have legislated disclosure of policy limits, in this case, Enterprise had already orally disclosed its policy limits to Wawanesa. Wawanesa was not satisfied with this disclosure and requested the actual Certificate of Insurance.

Dymond D. J noted that it was not until liability had been proven against Enterprise that Wawanesa could have any potential liability to Ms. Arnold in the action that she has commenced against them. In addition, unless Enterprise was held liable for a claim greater than its policy limits on behalf of Ms. Davidson, it would never be called upon to disclose to Wawanesa its policy coverage. Dymond J concluded that there would not appear to be a nexus that connects the application for production of Enterprise’s Certificate of Insurance to Wawanesa at this time. Dymond J determined that the present application was premature and that the Enterprise’s Certificate of Insurance was not producible to Wawanesa.

In August 1993, a fire destroyed an industrial building that also housed two residential units. The building had been used as a mushroom growing facility prior to 1991 and was insured under a standard commercial loss policy. No mushrooms were grown between February 10, 1993 and the date of the fire. The Insurer claimed the lack of activity demonstrated that the farm was completely shut down and indicated that the Insureds represented that the farm was back in business when the policy was issued. The owners and tenants of the building brought actions against the Insurer for recovery which were heard before a jury. The jury awarded to the Insureds full compensation for the fire loss and also awarded $2.5 million in punitive damages against the Insurer. The Insurer appealed the decision.

On appeal, the Insurer argued that the trial judge misdirected the jury in respect of Statutory Condition 1 which concerned misrepresentations by an applicant for insurance, by indicating that an element of dishonesty was required in a misrepresentation. The Insurer further argued that the trial judge misdirected the jury on the policy’s "shut down" clause which excluded coverage for loss or damage to property at locations that had been shut down for more than 30 consecutive days.

The Ontario Court of Appeal allowed the appeal, set the judgment aside and ordered that a new trial take place. The Court found that the trial judge had misdirected the jury in respect of the misrepresentation defence. The errors in the instructions to the jury relating to the misrepresentation were compounded by further misdirection and non-direction in respect of the shut down exclusion clause. The Court noted that the trial judge’s discussion of fraudulent omissions was unnecessary because it was not part of the Insurer’s case. Statutory Condition 1 was engaged by innocent misrepresentations and no element of fraud or deceit was required. The Court held that the Insurer was entitled to rely on the statement that the farm was back in business, particularly because it came from an insurance agent who would have known that the status of the farm was important. The Court held that the Insurer was not required to conduct a further investigation. The Court noted that the policy contained a shut down exclusion which demonstrated that the state of business was material to the Insurer and that this was known by the insurance agent.

The Court found that the trial judge’s instructions did not respect the proper roles of judge and jury and consistently left the jury to decide competing legal propositions put forward by the parties. In the result, the judgment was set aside and a new trial ordered.

The B.C. Court of Appeal considered the plaintiff’s appeal of a judge’s order requiring the plaintiff to produce documents providing details of a mediated settlement the plaintiff agreed to on his wife’s behalf in another action arising from a MVA in which the plaintiff’s wife was injured. The plaintiff’s claim against the insurer, Sun Life, arose under a policy of long-term disability coverage under which the wife had benefits for loss of income. The long-term disability policy included a subrogation clause which stated that where the insured had a right of action against the third-party for recovery of loss of income, the insured was required to provide to the insurer reports of settlement negotiations with the third-party and copies of documents in the insured’s possession or control that related to the right of action against the third-party.

In the litigation related to the MVA, the defendant driver was held 100% at fault. Damages were then mediated between the plaintiff and ICBC, the defendant’s insurer, and a global settlement was reached. The court order approving the settlement specified terms allocating approximately $40,000 to the insurer for disability payments received by the plaintiff on his wife’s behalf.

The insurer claimed it was entitled to see the documents underlying the mediated settlement, so that it could tell what sum was paid in respect of lost income, past and future. The plaintiff claimed that the documents relating to the mediation and the settlement were privileged under the blanket privilege recognized by the B.C. Court of Appeal in Middlekamp et al v. Fraser Valley Real Estate Board et al (1992), 71 B.C.L.R. (2d) 276 or through solicitor’s brief (litigation) privilege. The insurer maintained that the documents were excepted from the privilege as necessary to the proper disposition of the dispute between the plaintiff and the insurer.

In chambers, the Master originally held that the insurer was entitled to know only what the settlement was and how the settlement was broken down amongst the various heads of damage. However, Mr. Justice Powers reversed the Master’s order directing the plaintiff to produce all the documents sought by the insurer.

The two issues on appeal were whether the documents relating to the mediation process were privileged either:

1. under the blanket privilege protecting settlement negotiations; or
2. by solicitor’s brief (litigation) privilege.

If either privilege applied, then the further issue was whether the documents fell within an exception to privilege.

Chief Justice Finch cited the judgment in Middlekamp, supra, which held that "blanket" settlement privilege protects documents and communications created for settlement purposes both from production to other parties to the negotiations and to strangers. Without such protection, the public interest in encouraging settlements would not be served. Chief Justice Finch found that privilege attached to the settlement communications with the defendant driver in the MVA litigation.

The main issue, therefore, was whether an exception to or waiver of privilege could be established in this case. To establish an exception in this case, the defendant was required to show that a competing public interest outweighed the public interest in encouraging settlement. An exception should be found only where the documents sought are both relevant and necessary in the circumstances of the case to achieve either the agreement of the parties to the settlement or another compelling or overriding interest of justice. Here, the plaintiff clearly put into issue the subrogation rights of the defendant insurer under the disability policy. Chief Justice Finch also found that the only way to establish objectively what the plaintiff actually received in compensation for lost earnings was to recognize an exception for these documents that would otherwise have been protected by settlement privilege. The relevance and necessity of the documents, therefore, militated in favour of recognizing an exception to settlement privilege in this case.

The Court of Appeal also dismissed the plaintiff’s appeal of the chambers judge’s ruling that the settlement documents were not protected by litigation privilege. Holding these documents to be protected by litigation privilege would be inconsistent with settlement privilege. Protecting settlement offers and mediation notes/summaries under litigation privilege would emasculate and subsume settlement privilege. Settlement privilege is premised on the special policy consideration of encouraging parties to settle. The same cannot be said of litigation privilege. Furthermore, the test for litigation privilege is difficult to apply to settlement offers and mediation notes/summaries. As well, it was difficult to see how the dominant purpose of these documents could be other than furtherance of a settlement, and specifically the avoidance of further litigation. Chief Justice Finch, therefore, found that the settlement offers or mediation notes/summaries were not protected by litigation privilege. While some of the expert reports and economic and actuarial evidence relied on to quantify the plaintiff’s wife’s pecuniary loss could attract litigation privilege, it was not established that these documents were, in fact, made for the dominant purpose of litigation. As a result, the appeal was dismissed.

T.L. made allegations of vicarious liability against the Synod of the Diocese of Edmonton ("Diocese of Edmonton") in 2001. The allegations stated that a minister employed by the Diocese of Edmonton sexually assaulted T.L. from 1979 to 1984. T.L. had no further contact with the minister, or the Diocese of Edmonton, after his 14th birthday which occurred in 1984. In the pleadings issued against the Diocese of Edmonton, T.L. pled that he was aware of the sexual assaults at the time that they occurred, but that the injuries resulting from the assaults did not manifest themselves until many years later.

The Diocese of Edmonton commenced an action for indemnity against its insurers, Lombard General Insurance Co. ("Lombard") and Le Assicurazioni D’Italia Spa ("Assitalia"). The Edmonton Diocese did not have a copy of the Assitalia policy, but provided Affidavit evidence stating that a policy was in place with Assitalia from April 1, 1982 to December 31, 1984. The Diocese of Edmonton entered into a policy issued by Lombard after December 1984.

With respect to the action commenced against Assitalia, Belzil J. noted that the insured has the burden of proving the existence of a policy of insurance on a balance of probabilities. Since neither the Diocese of Edmonton nor Assitalia could locate the policy, the Court was required to rely upon secondary evidence to determine if a policy was in existence. The Diocese of Edmonton provided Affidavit evidence from its insurance broker indicating that he had placed a policy of insurance on behalf of the Diocese of Edmonton with Assitalia. The Court found this sufficient to establish that a policy existed. The Diocese of Edmonton was also required to establish the terms of the policy that was in place. Belzil J. noted that secondary evidence is admissible to establish the terms of a contract when the written contract no longer exists, citing The Law of Evidence in Canada, Sopinka and Lederman, 2nd ed. Butterworths, 1999, p. 1008 and Catholic Children’s Aid Society of Hamilton-Wentworth v. Dominion of Canada General Insurance Co., [1998] O.J. No. 3720. The general wording of the Assitalia policies for the period of April 1, 1982 to December 31, 1984, were provided to the Court through Affidavit evidence. Belzil J. ruled that the policy in place between the Diocese of Edmonton and Assitalia contained wording identical or very similar to the policy wording found in the Assitalia policies that had been issued for the relevant time period. Belzil J. further ruled that Assitalia’s duty to defend the Diocese of Edmonton had been triggered by the filing of the T.L.’s action against the Diocese of Edmonton.

With respect to the action commenced against Lombard, the Diocese of Edmonton acknowledged that the allegations pled by T.L. indicated that the abuse ended before it entered into the policy of insurance with Lombard. The Diocese of Edmonton argued that the Plaintiff’s allegations that damages relating to the abuse manifested themselves years later was sufficient to trigger Lombard’s duty to defend.

Belzil J. noted that in Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252, the Supreme Court of Canada recognized that, generally speaking, insurance contracts are either claims-made or occurrence-based policies, and that it is critical to analyze the insurance contract in question to determine if the claim as pleaded would trigger the Insurer’s duty to defend. Belzil J. concluded that the Lombard policy contained no "claims-made" wording, that is, the policy would not respond to a claim made within the policy period if the "occurrence" occurred outside of the policy period. Because of the lack of "claims-made" wording in the policy, Belzil J. determined that the Lombard policy was an occurrence policy intended to respond to "liability inducing events" which occurred only during the policy period.

Lombard argued that since the allegations pled against the Diocese of Edmonton stated that T.L. had no contact with the Diocese, and the minister, after 1984, there could be no "liability inducing event" during the time that the Lombard policy was in effect.

The Diocese of Edmonton argued that the Statement of Claim indicated that the Plaintiff only became aware of the full extent of damages from the alleged abuse after the Lombard policy came into effect and cited a number of discoverability cases in support of its argument that the Lombard policy should respond to the Plaintiff’s claim. Belzil J. noted that it was critical that T.L. did not allege that he was unaware of improper touching during the time of abuse, but that the full extent of damages arising from the abuse did not become apparent until the Lombard policy was in place.

In these circumstances Belzil J. found that the discoverability concept had no application to the law of insurance and concluded that the discoverability of the full extent of T.L.’s damages during the time that the policy was in effect did not trigger a duty for Lombard to defend the Diocese of Edmonton.

Elke Richard, the spouse of one Plaintiff and the mother of the others was killed in a motor vehicle accident in which she was a passenger. The vehicle was operated by the Defendant, Wayne Worth, and owned by the Defendant, Mary Wyatt. Wayne Worth was intoxicated at the time of the accident. Mary Wyatt’s position was that she did not give Wayne Worth permission to drive her vehicle. At the time of the accident, the Plaintiff, who was the husband of the deceased, was living with a woman who owned a vehicle insured by Kingsway. The husband was listed as the driver on that policy. Early in the proceedings an issue arose whether Kingsway was liable under the policy for the loss, or whether the Motor Vehicle Claims Fund (the "Fund") should defend the action against Wayne Worth, who was allegedly an uninsured driver.

Counsel for the Fund advised Kingsway that based on the case law at the time, which affirmed that a listed driver was an insured for the purpose of uninsured automobile coverage, the Fund required the Plaintiffs to proceed against Kingsway. As a result, Kingsway admitted that the Plaintiffs were entitled to coverage under Kingsway’s policy and served a Statement of Defence and cross-claim. Kingsway conceded that there was likely no consent for the operation of the vehicle by Wayne Worth and agreed to let the Defendant, Mary Wyatt, out of the action.

The Plaintiffs and Kingsway met on June 21, 2004 and negotiated a settlement which was subsequently confirmed. All that remained for the Plaintiffs to do was obtain Court approval of the settlement under Rule 7, since three of the Plaintiffs were under the age of majority.

On September 3, 2004, before the Plaintiffs could bring the motion for Court approval of the settlement, the Ontario Court of Appeal released a case in which it ruled that a passenger in a vehicle operated without the owner’s consent is excluded from the uninsured automobile coverage under an Ontario Automobile policy. This decision overturned the previous law.

On September 7, 2004, counsel for Kingsway wrote the Plaintiffs’ counsel and advised him that in view of the new case law, Kingsway could no longer consent to the judgment.

Counsel for the Plaintiffs argued that a change of heart, even if based on a change in the law, is not justification for resiling from an agreement. The Plaintiffs argued that, in the absence of evidence that the settlement was unfair, unreasonable, or obtained by fraud, policy favours upholding and enforcing settlements agreed on by litigants.

Counsel for Kingsway submitted that based on Milios v. Zagas, [1998] O.J. No. 812 (Ont. C.A.), the Court should exercise its discretion not to enforce the settlement. Kingsway argued that the agreement was based on a mutual mistake that the Plaintiffs were entitled to uninsured automobile coverage from Kingsway. Kingsway further argued that there would be no prejudice to the Plaintiffs if the settlement was not enforced because they would still have recourse against the Fund. On the other hand, there would be prejudice or inequity to Kingsway if the settlement were enforced because Kingsway would be required to pay money it did not owe under the insurance contract, which should be paid by the Fund.

Lack, J. found that there was no evidence of mistake in the present case. The parties concluded their agreement on the basis of their respective views of the law. They knew and must be expected to take into consideration that future pronouncements of what the law is may prove their views to have been wrong.

If the Court did not enforce the settlement, the Plaintiffs’ action would proceed against Wayne Worth, with the Fund having to resume its representation of Mr. Worth. Counsel for the Fund advised the Court that he was not ready to proceed to trial.

The Fund ceased to be involved in this action in 2003 because of Kingsway’s admission of coverage. Implicitly, Kingsway was seeking to resile from that admission in favour of the Fund. Because the Fund would be affected as a third party, the Court concluded that the Fund would be significantly affected and prejudiced if the settlement was not enforced.

Because the policy of the Court is to promote settlement, and in light of the fact that this was not a situation where there was error, bad faith or an unconscionable transaction and weighing the potential prejudice to those concerned, the Court concluded that this was not an appropriate case in which to refuse to enforce the agreement.

On a summary judgment motion with respect to whether Halifax had a duty to defend Innopex, the lower court found in favour of the insurer, holding that it did not have a duty to defend its insured against a trademark infringement claim in a U.S. court. At issue was a policy providing coverage for "advertising liability", but excluding coverage for "infringement of trademark, service mark or trade name, other than titles or slogans …".

The motions court reviewed the pleadings of the underlying action, and received evidence from both parties with respect to whether the sale at issue was advertising and/or use of a trademark or title. Counsel for the insurer adduced evidence about the activities at issue in the underlying suit, including evidence about Innopex’s marketing and sales, to form the facts upon which he argued that the activity was not advertising and therefore not covered. The court made an inquiry into the interpretation of "advertising" and "infringement of title", their use in American parlance, and their interpretation in the U.S. case law. The motions court held that the activities of the insured were not advertising and therefore they triggered the exclusion for infringement of a trademark, and the activities did not fall into the excepted activity of "infringement of title".

The Court of Appeal criticized the approach of the motions court. Borins J. held that by making an inquiry into the underlying facts and activities of the insured, the motions court failed to address the fundamental question of whether Halifax had a duty to defend on the basis of the pleadings alone, read with the relevant provisions of the insurance policy. An inquiry into whether the insured had, in fact, engaged in the conduct complained of should not be part of the inquiry on the duty to defend application. By making an inquiry into the "true facts" rather than looking only at the pleadings and the policy, the motions court erroneously based its decision on extrinsic evidence.

The Court of Appeal held that on the pleadings and the policy alone, there was a duty to defend the Gucci complaint. It found that the facts as pleaded came within the coverage in the policy, because portions of the pleadings referred to false descriptions and false representation in the marketing, distribution, and sale of goods. The Court of Appeal held that such a claim fell within the coverage for "advertising liability" in the policy.

A fish plant belonging to the Plaintiff Insured was destroyed by fire in December 1995. The plant and its contents were insured under two policies, one covering the stock and another covering the building and equipment.

The Insurers denied coverage. The stock Insurer claimed the owners of the Insured or persons acting on their behalf committed arson to collect on the insurance money. They also relied on several alleged policy violations by the Insured which served to vitiate the policy, as did the building and equipment insurers.

With respect to the claim under the stock policy, the defence of arson advanced by the stock Insurers failed as they did not prove to a high degree of probability that the fire was incendiary nor did they eliminate all reasonably probable causes for the fire other than arson. The court also held that the Insured did not violate the policy in any way which warranted vitiating the policy.

With respect to the claim under the building and equipment policy, the defence of breach of policy was unsuccessful, since, any violations were more technical than substantial.

The Insured was therefore entitled to the damages proven. The Insured’s claim for general damages, aggravated damages and punitive damages was dismissed. The Court held that the Insurer’s actions did not reach the exceptional level required for such an award.