Canada: Defining Parameters: Insurers Duty To Defend V. Duty To Indemnify

Last Updated: April 26 2018
Article by Douglas B. B. Stewart and Deepshikha Dutt

Practically every business and homeowner obtains insurance to protect themselves against losses to their property or business caused by an unforeseen event. However, sometimes when these events happen, both the insurers and insureds alike find themselves faced with the seminal question of whether such an event is covered by the insurance policy. Two most important aspects of an insurance policy when determining what is covered are: (i) The insurers duty to defend; and (ii) The insurers duty to indemnify. The duty to indemnify is the most common and known aspect of an insurance policy. This duty requires the insurer to pay for any judgment awarded to the third party against its insured, or any settlement that the parties may reach in lieu of judgment.

However, it is the duty to defend that is usually causes alarms bulbs to go off as the law on this issue has been evolving. The duty to defend can, in some cases, also end up costing more to an insurer than actual indemnification. This article is an attempt at demystifying some of the questions and principles that insurers' should keep in mind when making this critical decision of whether or not to defend a claim that arises in Canada.

I. What is the duty to defend?   

An insurer's duty to defend is triggered when a claim is filed against an insured which alleges acts or omissions that fall within the coverage set out in the insured's policy. The mere possibility that a claim covered under the policy may succeed is sufficient to impose the duty to defend. As such, the duty to defend is quite broad and arises even if the claim is eventually dismissed.  

While connected to the duty to defend, the duty to indemnify is much narrower in scope. The duty to indemnify is only engaged when the claimant's allegations are proven at trial. Accordingly, an insurer only has a duty to indemnify for settlement or judgment amounts that fall within the coverage set out in the insured's policy. As such, an insurer's duty to indemnify is triggered far less frequently than the duty to defend.1

II. Who has a duty to defend?  

If the duty to defend is triggered, both the primary and excess insurer may have a duty to defend. Where an excess insurance policy provides for a duty to defend and it is evident that the potential judgment against the insured may be substantially larger than the amount covered by the primary policy, the excess insurer may be obligated to defend the claim.2

III. When is the duty to defend triggered?  

The determination of whether an insurer has a duty to defend is a contextual inquiry that will depend on: (i) the provisions of the insured's policy; and (ii) the facts as pleaded by the claimant.  

Step #1: Does the policy stipulate a duty to defend?  

The first step in determining whether a duty to defend arises is to look to the provisions of the insured's policy.  While many insurance liability policies set out an insurer's duty to defend against claims, not all policies contain this language. As such, the duty to defend must be specifically stated in the insured's policy.3 It cannot simply be inferred from the duty to indemnify. Moreover, courts will interpret the language of the policy that triggers the duty to defend in the context of the entire insurance agreement.4 However, it is important to note that any ambiguity in the policy will be resolved in the insured's favour.5

Step #2: Are the acts and omissions alleged in the pleadings covered under the policy?

a. The "pleadings rule"

The second step in determining whether a duty is owed is to assess whether the pleadings allege an act or omission which falls within the coverage of the insured's policy.6 The "pleadings rule", as it is called, was recently articulated by the Supreme Court of Canada in Monenco Ltd. v. Commonwealth Insurance Co.7The Court stated:

"If the claim alleges a state of facts which, if proven, would fall within the coverage of the policy, the insurer is obligated to defend the suit regardless of the truth or falsity of such allegations."8

Accordingly, it is not necessary for the pleadings to definitively establish that the acts or omissions alleged will succeed.9 The "mere possibility" that a claim within the policy may succeed is sufficient to trigger the duty to defend.10

b. True nature" of the claim

While the courts will look to the pleadings in order to assess whether the claim falls within the insured's policy, they are cognizant that claimants may draft the pleadings to intentionally include the alleged acts or omissions in the scope of the insurer's policy. To curb manipulation of claims in this manner, courts will determine whether claims actually fall within the insured's coverage by assessing the "true nature" or the substance of the claim.11 Therefore, the courts will not necessarily stay bound to the plaintiff's potentially arbitrary characterization of the claim in determining whether the insurer has a duty to defend.12

Step #3: Is the claim derivative?

The third step in determining whether the duty to defend is triggered is to assess whether any claims pleaded are entirely derivative in nature.13 For example, the duty to defend will not be triggered if a claim is characterized in terms of both negligence and an intentional tort. If both the negligence and intentional tort arise from the same set of factual circumstances, the negligence claim is derivative and  will be subsumed into the intentional tort.14 However, a claim for negligence will not be entirely derivative if the factual circumstances are sufficiently distinct such that the two claims are unrelated. In this case, the insurer would be obligated to defend against both claims.

IV. Can the duty to indemnify arise when there is no duty to defend?

The duty to defend is often linked to the duty to indemnify. However, a duty to indemnify may arise, in limited circumstances, where there is no duty to defend. For example, in British Columbia v. Surrey District School Board No 3615, the British Columbia Court of Appeal held that the insurer, the British Columbia Ministry of Education, had a duty to indemnify the Surrey District School Board (the "Board") for legal fees and costs it was ordered to pay to intervenors in a separate litigation under which the Board was deemed to have passed unconstitutional resolutions. The Ministry of Education argued that it did not have a duty to indemnify because while the pleadings alleged a violation of constitutional rights, , there was no allegation of economic loss. However, the Court concluded that the language of the policy was intended to indemnify school boards for the costs of other parties in litigation which they were ordered to pay on behalf of the school district as a result of their duties . While Justice Newbury acknowledged that it was unusual for the duty to defend coverage not to be co-extensive with the duty to indemnify, he noted that if the duty to defend could be broader than the duty to indemnify, "...I see no reason in principle why the converse may not be true where the plain meaning of the policy so indicates."16

VI. Comment

On a practical note, insurers should ensure that policies are drafted carefully  to clearly set out the scope of the duty to defend or the duty to indemnify, as any ambiguity in the language of the policy will be decided in favour of coverage for the insured. As such, if an insurer wishes to exclude certain claims from the duty to defend or indemnify, express policy language should be used to exclude coverage. Finally, insurers should take note that while the duty to defend is generally linked to the duty to indemnify, there may be cases where the duty to indemnify exists without the duty to defend, and vice versa. Accordingly, it is prudent to conduct a thorough assessment of the potential for either duty to arise when claims are filed against any insured. 


1. Heather A. Sanderson et al., Commercial General Liability Insurance, (Toronto and Vancouver: Butterworths, 2000) at pp. 215-219. title="Jump back to footnote 1 in the text.">↩

2. Alie at para 175.

3. Alie v. Bertrand & Frere Construction Co (2002), 62 OR (3d) 345 (Ont. C.A.) para 174 [Alie].

4. Alie at para 184.

5. W.(T.) v. (W.(K.R.J.) (1996), 29 O.R. (3d) 277 (Ont. Gen. Div.) at para 30.

6. Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24, [2000] 1 SCR 551 (SCC) at para 50 [Scalera].

7. Monenco Ltd. v. Commonwealth Insurance Co [ 2001] 2 SCR 699 (SCC).

8. Ibid at para 28.

9. Nichols v. American Home Assurance Co., [1990] 1 SCR 801.

10. Ibid at para

11. Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, 2010 CarswellBC 2501.

12. Ibid at para 20.

13. Scalera at para 52.

14. Ibid at 85.

15. 2005 BCCA 106.

16. Ibid at para 28.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

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. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
14 Nov 2018, Other, Toronto, Canada

Save the date. It’s that time of the year to mark your calendars for the opportunity to earn the rest of your CPD credits all in one day!

27 Nov 2018, Other, Toronto, Canada

Dentons is pleased to sponsor the Global Property Market Forum taking place November 27, 2018 in Toronto.

30 Nov 2018, Conference, Toronto, Canada

Dentons is proud to be the presenting sponsor for Autonomous Vehicle P3s: Visions of the Future at this year’s CCPPP conference in Toronto on Nov 5-6, 2018.

Similar Articles
Relevancy Powered by MondaqAI
Strigberger Brown Armstrong LLP
McCague Borlack LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Strigberger Brown Armstrong LLP
McCague Borlack LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions