Canada: Superior Court Affirms Municipality's Right To Counsel Of Their Choosing

A recent decision by the Superior Court confirms an insurer's duty to defend a municipality and the municipality's right to appoint and instruct counsel of their choosing where there is a conflict between a municipality and their contractor.

The issue arose in Markham v Intact, 2017 ONSC 3150 following a slip and fall on a municipal sidewalk in Markham. Markham had contracted out winter maintenance of its sidewalks to a contractor, VTA, which was required to plough, sand and/or salt upon request by Markham. VTA took out a Commercial General Liability policy with Intact which named Markham as an additional insured, and which contained an unqualified promise to defend Markham for actions covered by the policy.

The Plaintiff brought an action against Markham and VTA for injuries arising from the slip and fall on February 24, 2014. Intact defended VTA — which crossclaimed against Markham — but Intact maintained that it was not obliged to defend Markham. Intact contended that Markham was not an additional insured with respect to the claim because the claim did not arise from VTA's operations because VTA was not asked to service the sidewalk on the date of loss. However, VTA had been called out every day between February 18-22, 2014.

Markham brought an application seeking: (1) a declaration that Intact was required to defend Markham in respect of all claims against Markham; (2) an Order that Markham was entitled to appoint and instruct counsel of its choosing, at the expense of Intact; and (3) an Order that Intact reimburse Markham for all past legal and administrative expenses incurred in defending the action.

The Court held that Intact had a duty to defend Markham. As per the Court of Appeal in Carneiro v Durham, 2015 ONCA 909, the elements of the test for the duty to defend include:

  • If the pleadings allege facts that, if true, require the insurer to indemnify the insured, the insurer is obliged to defend the claim;
  • The mere possibility that a claim may fall within the policy is sufficient to trigger the duty to defend; and
  • In assessing whether the facts pleaded fall within the policy, the court must consider the substance and true nature of the claim.

The Court found that the Plaintiff alleged negligence against both Markham and VTA for failing to properly maintain the sidewalk on the date of loss and the days leading up to it. Furthermore, the allegations against Markham and VTA were identical. The failure to remove snow and ice from the sidewalk was "at the heart of what VTA was contracted to do under the Maintenance Agreement with the City which also formed the basis of the Policy of Insurance with Intact in which the City is named as an Additional Insured."

The fact that some of the allegations included non-covered claims did not impact the insurer's duty to defend because there was nothing in the policy qualifying the insurer's duty to defend.

The Court also accepted that there was a conflict of interest vis-à-vis Markham and VTA that was best addressed by retaining separate counsel. It was clear from VTA's Statement of Defence and Crossclaim that VTA's objective was to shift liability to Markham. Separate counsel for Markham was necessary "on the face of the pleadings" and Markham was entitled to appoint and instruct counsel of its choice at the expense of Intact, without having to report to Intact.

Finally, the Court also ordered that Intact reimburse Markham for the full costs of its defence of the action. While the Statement of Claim included claims against the City that were not covered by the policy, there was "no practical means of readily distinguishing the costs of defence between the covered and not covered claims." The Court also ordered Intact to pay Markham's full indemnity costs of the application.

This case along with similar and earlier decisions in Carneiro, Zhou v. Markham (Town), and Sinclair v. Town of Markham is a further reminder of a municipality's rights under a policy of insurance with its winter maintenance contractors. Importantly, it also affirms a municipality's entitlement to appoint separate counsel of its own choosing.

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