With winter weather on the horizon, 'tis the season for slips and falls. To keep visitors safe, many property owners will contract out their winter maintenance this year. A standard obligation imposed on contractors under these winter maintenance contracts is the requirement to obtain comprehensive general liability insurance naming the property owner as an additional insured. But what happens if the contractor fails to name the property owner as an additional insured?
Duty to defend
An insurer is required to defend an insured against any claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the additional insured for the claim. This is known as the duty to defend. It entails the insurer paying for and instructing legal counsel to defend a claim brought against its insured by a third party. Where a contractor has not named a property owner as an additional insured to the policy, the insurer does not have a duty to defend the property owner. However, this does not mean the property owner is left holding the bag. The following two Ontario cases illustrate this fact.
Papapetrou v 1054422 Ontario Ltd, 2012 ONCA 506
In Papapetrou v 1054422 Ontario Ltd, 2012 ONCA 506 (Papapetrou), the plaintiff, Maria Papapetrou, claimed she was injured when she slipped and fell on black ice that had accumulated on the stairs of The Galleria, a building owned by 1054422 Ontario Limited and managed by The Cora Group Inc. (collectively, The Cora Group). Prior to the alleged fall, The Cora Group contracted Collingwood Landscape Inc. (Collingwood) to provide winter maintenance and snow removal services for The Galleria. In its service contract, Collingwood promised to name The Cora Group as an additional insured on Collingwood's commercial general liability insurance policy; however, Collingwood failed to do so.
In the lower court, Collingwood was required to assume the defence of The Cora Group, a decision that was varied on appeal. Collingwood's breach of its contractual obligation to name The Cora Group as an additional insured did not create a duty to defend; rather, it gave rise to a remedy in damages. The fact that The Cora Group did not object to the form of insurance Collingwood obtained was irrelevant; Collingwood's contractual obligation remained. As such, Collingwood was liable to The Cora Group in damages.
Ordinarily, the scope of this obligation would be determined by the terms of the insurance contract. The difficulty in this case was that the terms of coverage for The Cora Group as an additional insured were not included in the insurance contract. Accordingly, the terms of the intended insurance coverage were discerned from the insurance obligation and the indemnity provision in the service contract. The scope of Collingwood's obligation to indemnify under the service contract was limited to "claims ... based upon, incidental to or arising out of the performance or non-performance of the contract by the Contractor." Accordingly, the quantum of damages awarded was the amount The Cora Group was required to pay to defend claims for bodily injury arising out of the manner in which Collingwood performed or failed to perform the service contract.
With respect to the need for separate counsel, the Ontario Court of Appeal determined that it would not be appropriate for Collingwood to assume The Cora Group's defence. Where distinct claims are made against a service provider and a property owner, the ability of a single counsel to defend both claims is hampered by an inherent conflict. The service provider and property owner each have an interest in blaming the other for the circumstances giving rise to the claim. As such, The Cora Group was allowed to retain independent counsel in respect of all allegations in the action. The obligation to pay for two defence counsel was seen as a necessary consequence of Collingwood's breach of its contractual obligation.
Bentley v Hastings (County), 2017 ONSC 2980
More recently, this issue was revisited by the Ontario Superior Court of Justice (Court) in Bentley v Hastings (County), 2017 ONSC 2980 (Bentley).
On October 29, 2013, the Corporation of the County of Hastings and Hastings Local Housing Corporation (collectively, the County) entered into a contract for winter maintenance services (Contract) with Steve Walt Property Maintenance (Steve Walt), whereby Steve Walt was required to provide snow clearing and de-icing services for the parking lot of 46 Tracey Park Drive, a community housing location in Belleville, Ontario (Parking Lot).
There was no agreement in this case to defend or indemnify. However, pursuant to the Contract, Steve Walt was required to obtain
- Third party liability insurance in the amount of CA$2 million dollars for himself (TPL Insurance); and
- Insurance naming the County as an additional insured.
Steve Walt obtained TPL Insurance through Economical Mutual Insurance Company (Economical) as required, but failed to obtain insurance naming the County as an additional insured.
On February 3, 2014, Katie Bentley allegedly slipped and fell on ice while walking through the Parking Lot. Three weeks later, on February 27, 2014, Kimberly Coul also allegedly slipped and fell on ice in the Parking Lot. Bentley and Coul (collectively, the Plaintiffs) brought claims naming the County and Steve Walt (collectively, the Defendants), alleging negligence for failure to remove ice from the Parking Lot. The negligence claims (Main Actions) against the Defendants were identical and were issued by the same lawyer representing both Plaintiffs. Economical, as the insurer of Steve Walt, was named as a third party.
As Steve Walt did not obtain coverage naming the County an as additional insured, Economical refused to take over the defence of the County. Steve Walt also refused to defend the County in the Main Actions. In response, the County brought a motion (Motion) seeking:
- A declaration that Steve Walt was in breach of the Contract for failing to procure insurance naming the County as an additional insured;
- An order awarding damages to the County equivalent to the amount that the County had incurred and would incur in defending the Main Actions;
- An order that the County was entitled to appoint and instruct counsel of its choice, at the expense of Steve Walt, to defend it in the Main Actions due to a conflict of interest; and
- Costs of the Motion.
The Court found that Steve Walt was in clear breach of the Contract on the plain reading of the same and the Certificate of Insurance, which did not name the County as an additional insured. Had the required insurance been obtained, given the nature of the allegations of negligence by the Plaintiffs, the insurer would have had a duty to defend. Had Steve Walt kept his contractual promise, the County would have a policy of insurance covering the costs of defending the claims made against the County by the Plaintiffs. In the result, the County had suffered damages, which it was entitled to recoup. The Court ordered Steve Walt to pay the County's costs of defence, past and ongoing, in the Main Actions.
The County argued that Steve Walt and Economical had an interest in establishing that the sole responsibility for the Plaintiffs' injuries was that of the County, so as to avoid having to indemnify the County. The County further argued that Economical and Steve Walt would be in a conflict of interest position if allowed to appoint counsel to defend the County in the Main Actions. The Court agreed. A clear conflict of interest existed between the parties. As such, the County was able to choose its own counsel and have its costs for that counsel paid for by Steve Walt. In these circumstances, separate counsel is required by the County at the expense of Steve Walt to defend itself in the Main Actions.
While the property owner was not left holding the bag, so to speak, and was able to obtain the costs of defending the claim in both Papapetrou, supra, and Bentley, supra, recourse to the Court was required in both instances. To avoid incurring unnecessary litigation costs, it may be wise to request proof of coverage prior to commencement of services.
1 Progressive Homes Ltd. v Lombard General Insurance Co. of Canada,  2 SCR 245, 2010 SCC 33 at paras 19-20.
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