Municipalities often retain contractors to provide a wide variety of important public services, for example, snow and ice removal. To protect itself from liability arising from a contractor's negligence, a municipality might insist on being named as an additional insured on the contractor's insurance policy. In Carneiro v. Durham (Regional Municipality) 1, the Ontario Court of Appeal recently had the opportunity to consider the bundle of rights aff orded to a municipality, named as an additional under a contractor's liability policy. The Court held that the municipality had independent rights under the policy, including a right to a defence, regardless of the defence provided to the named insured.
The events that led to the dispute in this case began on a snowy day in the Regional Municipality of Durham ("Durham"). Antonio Carneiro Jr. died in a car accident when he allegedly lost control of his vehicle due to ice and snow on a Durham Road. His family members claimed damages for the alleged negligence of Durham, Miller Maintenance Limited ("Miller"), the province of Ontario and two individual defendants.
Durham had contracted Miller to provide snowplow services for the municipality's roads during the winter. The contract required Miller to include Durham as an additional insured under its liability policy. Miller's policy with Zurich did just that.
The statement of claim set out a laundry list of identical particulars of negligence against Miller, Durham and Ontario. It asserted a number of failings, including a failure to keep the road free of ice and snow, inadequate design and construction of the road and failure to close the road during a heavy snowstorm.
Durham brought a Third Party claim against Zurich, seeking a declaration that Zurich had a duty to defend and indemnify Durham in the action. Zurich claimed it had no duty to defend Durham because some of the particulars of negligence in the statement of claim – those unrelated to Miller's winter maintenance work – fell outside the scope of the coverage it provided to Durham.
Zurich acknowledged that the allegations pertaining to Durham's liability arising out of Miller's winter maintenance responsibilities were covered by the policy. However, Zurich argued that by defending Miller it was protecting Durham against any liability it may have for Miller's negligence.
The motion judge found that Zurich was only required to defend Durham "with respect to the claims insured for Miller". Durham was to provide its own defence with respect to all other allegations in the claim. The motion judge concluded that Durham was ultimately protected because it would be entitled to recover its costs at the end of the litigation if it were found not liable.
The Court of Appeal disagreed and found as follows:
1. The allegations in the claim triggered Zurich's duty to defend Durham;
2. The policy contained an unqualifi ed contractual promise to defend Durham for actions covered by the policy;
3. Zurich did not satisfy this duty to Durham by defending Miller;
4. Zurich's best interests do not negate its obligation to Durham;
5. The duty to defend is a separate contractual obligation that is not met by Zurich simply indemnifying Durham at the end of the day.
The Court noted that when pleadings allege facts that, if true require an insurer to indemnify the insured, the insurer is obligated to defend the claim. The true nature of the claim in the action was clear: the deceased lost control of his car because it skidded on ice and snow on the roadway, which Durham and Miller allegedly failed to keep clear. Therefore, Zurich's duty to defend was triggered, subject to any qualifi cation in the policy.
Second, Zurich's policy required it to defend the action, not just with regards to the covered claims. Zurich's policy imposed a duty to defend Durham as an additional insured against any action seeking damages to which the insurance applied. As a result, Zurich had an obligation to pay the reasonable costs of Durham's defence for covered claims, even if that defence furthered the defence of uncovered claims. There was nothing in the policy language to qualify the duty to defend or to suggest that the duty did not apply to "mixed" claims of covered and uncovered claims.
Third, the Court held that Zurich could not satisfy its duty to Durham by defending Miller, noting as follows:
As an additional insured, Durham has independent rights, including a right to a defence, regardless of the defence provided to the named insured. If Zurich's position were correct, it would seldom be required to provide a defence to an additional insured because it would usually be defending the named insured against the same liabilities.
In addition, the Court found that the motion judge erred when he decided it was not in Zurich's best interests to defend when there were both insured and uninsured claims. This fi nding ignored Zurich's contractual duty to defend.
Lastly, the Court found that Zurich could not discharge its duty to defend by suggesting Durham could seek its costs at the end of the litigation if it were found not liable. The outcome of the trial, the Court pointed out, is irrelevant to the duty to defend. The Court opined that the duty to defend would be a hollow one if the insurer's only obligation were to indemnify its insured at the end of the day. That was not the obligation Zurich undertook when it issued a policy naming Durham as an additional insured. Rather, Zurich promised to defend Durham and it should have been held to that promise.
The Court concluded that Zurich was obligated to defend Durham in the action in its entirety. At the end of the proceedings, Zurich could seek an apportionment of defence costs to the extent they dealt solely with uncovered claims or exceeded the reasonable costs associated with the defence of covered claims.
This decision reminds us of the benefi ts and independent rights of being listed as an additional insured under a contractor's insurance policy. Those rights, including the right to a defence, are independent of the defence provided to the named insured. Municipalities should fi nd some comfort in this ruling and continue to insist being listed as additional insured under their contractor's policies.
1 2015 ONCA 909
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.