In the recent Court of Appeal decision, Pembridge Insurance Company of Canada v. Chu, the Ontario Court of Appeal discussed the duty to defend.
- When does a duty to defend arise?
- Should the Court consider whether another insurer has a duty to defend based on another policy and the pleadings?
The leading decision regarding duty to defend is the 2002 Ontario Court of Appeal decision in Cooper v. Farmer's Mutual Insurance Co, which states:
The insurer is obliged to defend if a claim alleges facts which, if proven, would fall within the insurer's policy coverage. A judge hearing a duty to defend coverage dispute is precluded from fact-finding on matters at issue in the underlying tort action.
The mere possibility that a claim on the policy may succeed is sufficient to engage an insurer's contractual duty to defend.
In the 2001 Supreme Court of Canada decision of Monenco Ltd. v. Commonwealth Insurance Co., the Supreme Court held:
If pleadings are not framed with sufficient precision to determine whether the policy covers the claims, the insurer's obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred. Coverage clauses are construed broadly, while exclusion clauses should be interpreted narrowly.
The facts in this case are as follows:
The insurer The Dominion of Canada General Insurance Company (Dominion) conceded a duty to defend with regard to its insureds, John Chu and Dennis Chu, pursuant to its policy of automobile insurance. The Chus also had home insurance with Pembridge Insurance (Pembridge) and since Dennis was living at home at the time of the automobile accident, he was covered under the homeowner's policy also.
A Third Party Claim was commenced against Dennis Chu pleading not only that he drove negligently, but that he got out of his vehicle, made threats towards the Defendant driver and passenger, yelled at them, hit the window and made other gestures causing the Defendant and passenger to fear for their lives.
The Defendant claimed that his accident with the Plaintiff occurred as a result of trying to get away from Dennis Chu and led to the Plaintiff's injuries.
Pembridge took the position that it had no duty to defend, because there were policy exclusions in place. The motion judge agreed, and therefore, the matter was appealed to the Court of Appeal
The Pembridge homeowner's policy insured the policy holder for "legal liability arising out of [their] personal actions anywhere in the world" but excluded claims made arising from "the ownership, use or operation of any motorized vehicle".
However, Dominion stated that the motion judge made a mistake in deciding that there was no duty for Pembridge to defend because:
- He did not compare the allegation against the Chus in the pleading with the homeowner policy's language, as binding jurisprudence mandates. Instead, the motion judge considered that it was "more appropriate" for the auto-insurer, Dominion to provide coverage.
- He erred in concluding that the intentional act exclusion in the homeowner's policy meant that Pembridge was under no duty to defend. The homeowner policy excludes coverage for bodily injury "caused by any intentional or criminal acts or failure to act". Binding jurisprudence confines that exclusion to acts intended to cause harm. On this point, the motion judge erred by conflating the issue over the duty to defend with the issue of the duty to indemnify, the latter of which can only be determined after the facts are found at trial.
- He inappropriately made factual findings that Dennis Chu's actions after getting out of the vehicle would be deemed "incident to the ownership, use or operation of a vehicle" and therefore covered by the auto-insurer and not by the homeowner insurer. Factual findings are to be made at trial. The duty to defend issue is to be based on the allegations as pleaded.
The Court of Appeal agreed.
At the time of the threats and assault, Chu was no longer in the vehicle and not using his vehicle. Therefore, the exclusion in the Pembridge homeowner policy for acts arising from "the ownership, use or operation of any motorized vehicle", when construed narrowly, does not apply to Chu's alleged assaults.
What is more interesting is whether the exclusion for bodily injury "caused by any intentional or criminal acts" would apply. However, based on the 2000 Supreme Court of Canada's decision in Non-Marine Underwriters Lloyd's London v. Scalera, the Court found that in addition to the intentional act, there also had to be an intent to injure. However, since there is no allegation that Chu intended to harm the Plaintiff or the Defendant, the Court of Appeal found that it was not clear that the exclusion was invoked.
Therefore, taking into account all of the pleadings and exclusions, it was found that there was a duty to defend.
A duty to defend requires the insurer to review the facts in each case, review the language of the policy and determine if any exclusions or conditions would apply. As is found in this case, it is irrelevant, whether there is another policy of insurance responding to the Claim already. Furthermore, had the pleadings gone one step further in asserting that there was an intent to injure, then the outcome of this decision might have been different.
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