Must an Insurer wait until Trial to Contest the Validity of the Policy?
Case Study: IT Haven v Certain Underwriters at Lloyd's
A recent decision1 indirectly raises the interesting question: Can an insurer under a liability policy make an application, at an early stage of its conflict with the insured, for a declaration that the policy is void ab initio for material non-disclosure or misrepresentation? More particularly, can the insurer, facing a duty to defend application made by the insured, and especially when the insurer has no defence available under the policy per se, make that application in response to the insured's application? Or must the insurer find itself subject to an order that it has a duty to defend until a trial is held?
One would think that the insurer ought generally to be entitled to raise as a response to the duty to defend application a counter-application seeking a declaration that the insurer has no duty to defend because the policy is void ab initio. Not only does fairness call for the insurer to have that right, but it would serve the policy goal of resolving the issues raised both by the insured and the insurer expeditiously and economically. The importance of those considerations is made clear in the following remarks:
Generally speaking, in this province the process adopted to decide a duty to defend issue is an application under rule 14.05(3)(d) or (h). This is a summary procedure well suited to determining a duty to defend issue which necessarily arises, as Iacobucci J. noted in Monenco, as a preliminary matter...That is not to say that evidence is never permissible on a duty to defend application. Indeed, as in this case, it is not uncommon that expert evidence is helpful to the court in the interpretation of the insurance coverage and, on occasion, in interpreting technical language in the underlying claim.2
When an insured person is sued for a claim that may fall within a risk that is insured, it is essential that he or she know at a very early stage whether or not the claim falls within the coverage, thereby creating a duty to defend, as it is necessary that prompt steps be taken to defend the lawsuit and to forestall default judgment. No doubt this underlies the principle that the duty to defend issue is to be decided expeditiously as a preliminary matter on the basis of the allegations in the underlying litigation read with the insurance coverage. The insurer's procedure in this case did not result in either an early, or an economical resolution of the issue. Indeed, it has now been more than four years since [the insurer] commenced its action claiming a declaration that it was not under a duty to defend.3
The question whether an insurance policy is void ab initio for non-disclosure or misrepresentation of material information is equally a preliminary matter (in fact, a matter that is even more foundational than the duty to defend issue) that ought, for the reasons expressed above, to be determined expeditiously and economically at an early stage of the dispute between the insured and the insurer. Just as it is "essential that the insured know at a very early stage whether or not the claim falls within the coverage", it is essential that the insured (as well as other parties in the underlying litigation) know whether there is a valid and enforceable insurance policy in place. Apart from all else, knowledge regarding the status of the policy will reduce the uncertainty regarding the presence or absence of insurance coverage for the claim, and therefore will have an impact on the likelihood, and terms, of settlement of the underlying action.
The decision in IT Haven, however, appears to call into question the ability of an insurer in cases where there is a dispute as to facts – i.e. in most cases – to bring before the court, at any early stage, its position that the policy is void.
The factual background in IT Haven
The case arose from an application by two insureds for a declaration that the insurer had a duty to defend them under an errors and omissions policy in an action commenced in the U.S. The application judge summarized the insurer's position as follows:
- The insureds had made material misrepresentations in the application for insurance;
- The insureds had not complied with the "material information" provision in the policy which excluded coverage for claims arising from undisclosed material changes to the conditions described in the application for insurance; and
- Various exclusion clauses in the policy applied.4
Two different issues: Duty to defend and Validity of the insurance policy
It appears that the main thrust of the insurer's position in IT Haven was directed to the issue of whether the policy was void ab initio because of misrepresentation or non-disclosure of material information by the insured. As indicated above, the first two of the three defences raised by the insurer went to that issue. The reasons for judgment, however, are strewn with references to the fact that the issue for determination in the application was whether the insurer had a duty to defend the insured in the underlying litigation.5 The proceeding was described as "what is in essence a pleadings motion",6 again highlighting the issue of whether the statement of claim in the underlying action raised a duty to defend on the part of the insurer. Almost the whole of the reasons for judgment was focused on the admissibility of the insurer's extrinsic evidence insofar as it related to the issue of whether or not there was a duty to defend, rather than insofar as it related to the validity issue. The application judge held that the extrinsic evidence proffered by the insurer was inadmissible for that purpose. The correctness of that finding is not an issue in this paper (although there seems to be little doubt as to that correctness).
Reasons of the application judge regarding the validity of the insurance policy issue
Only one paragraph of the reasons in IT Haven was devoted to this issue, despite the fact that it appears have constituted the, or least a, major defence to the duty to defend application. That paragraph reads as follows:
Dealing with the allegations made by [the insurer] that [a particular insured] breached his duty to disclose relevant information engages the fundamental question of not only whether [that insured] did breach such obligation but just as important it engages the question of whether the information he failed to provide was material. [The insurer] relies in part on expert opinion evidence to establish such materiality which at least in part demonstrates why the alleged breach of the material information clause in the Policy cannot possibly be relied upon at this stage of the proceedings. A further reason to preclude reliance on this clause can be found in Section 124(5) and (6) of the Insurance Act which strongly suggests that issues of materiality should be proven at trial.7
The application judge went on to say that "If the evidence that [the insurer] seeks to rely upon is not contained in the pleadings then [the insurer] may only rely on extrinsic evidence if the purpose of the evidence is needed by the court to determine the nature of the claim against the [insureds]."8
Why was there no counter-application made by the insurer?
When considered in the context of the proceeding – which, as repeatedly emphasized by the application judge, was a duty to defend application made by the insured – the insurer's procedural approach was questionable. To the extent that its response to the duty to defend application was that the insurance policy was void ab initio, with the result that the issue of whether there was a duty to defend would be moot, that response required, from a procedural standpoint, a request to the court for that relief. The general rule prohibiting the introduction of extrinsic evidence was applicable within the context of the insured's duty to defend application. Whether that general rule would apply had the insurer expanded the scope of the proceeding to include its own request for relief is the subject-matter of this paper, but the point being made here is that the insurer's failure to request that relief was effectively an invitation to have the general rule applicable to all issues raised within the duty to defend application.9 The brief comments made by the application judge that are reproduced above, however, appear to go well beyond that explanation.
Nevertheless, the question that arises is: Why didn't the insurer respond to the insured's duty to defend application with its own counter-application for a declaration that the policy was void ab initio? Perhaps they believed that the court would find that the extrinsic evidence involved disputes as to facts which would not be resolvable in an application format. That, however, seems unlikely, because the insurer advanced those very arguments in response to, and in the context of, the insured's duty to defend application. There was no difference in principle between asking the court to make the same factual findings in a counter-application for a declaration that the policy was void, and asking that they be made in a response to the insured's application for a declaration that there was a duty to defend.
Would a counter-application have made a difference in IT Haven?
Would the application judge have precluded the admissibility of the insurer's extrinsic evidence had the insurer sought to advance that evidence not in the context of a simple response to the insured's duty to defend application, but in the context of a counter-application for a declaration that the policy was void ab initio? The answer to that question is not entirely clear but, as mentioned, the brief comments made by the application judge regarding the insurer's position that the policy was void strongly suggest that the extrinsic evidence would have been held inadmissible in any event.
Why should a counter-application be governed by the rules applicable to the insured's application?
The validity issue that would be raised by the insurer in its counter-application is, at least in a general sense, entirely different than the duty to defend issue raised by the insured. The insurer's issue is not a "pleadings issue" – the allegations made in the statement of claim would normally be irrelevant to the question whether the policy is void for material misrepresentation or non-disclosure. Furthermore, at least at times, if not often, there will be no overlap between the facts relevant to the validity issue and the facts relevant to the duty to defend issue or those relevant in the underlying litigation.10 A matter of particular importance is that the facts relevant to, and necessary for the adjudication of, the validity issue can be brought before the court only by way of extrinsic evidence. If the extrinsic evidence rule were automatically applicable to the issue of whether the policy is void, how would the insurer ever be able to raise that issue prior to trial? To apply unfailingly to the determination of a validity issue the general rule of inadmissibility of extrinsic evidence is to indirectly but effectively compel the insurer to defend the insured under policies that may ultimately be found to be void ab initio.
What is the rationale for mechanically applying a rule applicable to one issue to what is a completely separate and independent issue, where there is not only no basis for the employment of that rule, but its application has the effect of precluding any early determination of a fundamental issue? As indicated below, there is a situation in which the application of the extrinsic evidence rule to an insurer's application to have a policy declared void is appropriate, but that is far from a sufficient basis for applying the rule as a matter of course.
It should be noted, however, that there is a surprising scarcity of decisions involving the determination of the enforceability of an insurance policy made via application by the insurer, and especially where that application is made in response to an insured's duty to defend application. In fact, I have not found any such decision, although the Slough Estates and related decisions considered below are at least indirectly relevant. There is a B.C. decision11 in which an insured's duty to defend application was dismissed because it was found that the policy was void as a result of non-disclosure by the insured of material information, but there was no counter-application by the insurer in that case. Perhaps it was considered that there was no need for one because the relevant facts were not in dispute.12
The Slough Estates and Comeau decisions
A decision which, to some degree at least, involved and considered the issues discussed in this paper is Slough Estates Canada Ltd. v Federal Pioneer Ltd.13 The insured in that case was the defendant in an action. It commenced a third party claim against its insurers and then made a motion for a declaration that the insurers were obligated to defend it in the main action. The insurers made a counter-motion for summary judgment to dismiss the third party claim, one of their grounds being that there had been non-disclosure of material information by the insured.
The first significant finding that was made was that the insurers' extrinsic evidence was inadmissible on the insured's motion.14 That, of course, is consistent with the general rule regarding the inadmissibility of extrinsic evidence on a duty to defend application.
It was next held that the proper course of action for the insurers was to move for summary judgment if the insured's motion were successful.15 This supports my view that an insurer can raise the issue of the validity of the insurance policy prior to trial, although I see no purpose to be served or benefit to be gained by putting off the insurer's application until after the resolution of the insured's duty to defend application. Whether or not the insured's application succeeds, it is to the benefit of all parties to have an early resolution of the validity issue. If practicable, the two applications ought to be heard together.
The motions judge then held that the mere allegation by the insurers that there had been non-disclosure of material information was not sufficient to permit the insurers to escape their duty to defend the insured,16 and that:
The material non-disclosure can be part of the summary judgment motion as it is in this case or can be determined at trial as it may be if the motion for summary judgment is unsuccessful.17
This again shows that the insurer is entitled to raise the issue of the validity of the insurance policy as a response to the insured's duty to defend application. In Slough Estates, that was accomplished by way of a motion by the insurers for summary judgment (a remedy not available where, as in IT Haven, no action has been commenced). Why is a motion for summary judgment on disputed facts (other than facts that are in issue in the main action – see below on this) acceptable, while an application seeking essentially the same relief, on the same disputed facts, would not be?18
There is no compelling reason why a counter-application by the insurer for a declaration ought not to be available to achieve the same result sought by the insurers in Slough Estates through their motion for summary judgment. The difference is merely one of procedural technicality, not substance. Furthermore, there is no reason why extrinsic evidence filed by the insurer in support of its application ought not to be admissible in the same way that it was for the insurers in Slough Estates on their motion for summary judgment.
The motions judge then adopted the reasoning in a U.S. decision19 where it was held that, on a duty to defend application, the insurer has an obligation to "conclusively" establish an absence of coverage, and that only undisputed extrinsic evidence is admissible for that purpose.20 That view aligns with Canadian law. Although not stated explicitly, it appears that the U.S. court considered it permissible for the insurer to introduce extrinsic evidence on an insurer's application or motion regarding the issue of the validity of the insurance policy, so long as the extrinsic evidence does not involve matters that are in dispute between the insured and the plaintiff in the underlying litigation:
There are at least two exceptions to the general rule barring declaratory relief on the insurer's duty to defend. First, declaratory relief is available if the insurer can establish lack of coverage by means of facts that the insured does not dispute. Second, declaratory relief is available if the insurer's defence to coverage hinges on factual issues that are unrelated to the issues in the third party liability action...In each of these situations, the duty to defend can be determined without forcing the insured to litigate issues that may arise in the third party action...
...An insurer moving for summary judgment must demonstrate an absence of coverage without engaging in litigation that could prejudice the insured's interests in the third party action. It can do so either by relying on undisputed facts or by adducing evidence of facts unrelated to the issues in the liability action...If the trial court determines that the facts on which the insurer relies, although disputed, will not be litigated in the liability action, the trial court should proceed to consider the motion for summary judgment.21 [emphasis added]
The motions judge in Slough Estates agreed, but found that in the circumstances of the case the extrinsic evidence proffered by the insurer was inadmissible:
I am in agreement with the reasoning in the Montrose case. The attempt by the insurer [on these motions] to prove facts that are in dispute between the insured and the plaintiff jeopardize the defence of their insured and should be left to the trial judge.22
Thus, where the determination of the question whether the policy is void requires the resolution of disputed facts, but where those are not facts that are in dispute between the insured and the plaintiff in the underlying action, the extrinsic evidence ought to be admitted and the determination ought to proceed, because if the policy is truly void, the insurer ought to be free of any obligation to defend the insured.
Although couched in the language of a duty to defend application, the following reasoning sets out this common sense approach:
Where...the issue of an insurer's obligation to defend is contingent upon the insured's right to be indemnified...and it can be shown in proceedings commenced for that purpose that there exists no possibility that the insured can be indemnified under that policy, I fail to see why an insurer should be compelled to defend the insured.23
That decision was reversed, on other grounds, on appeal,24 where the following comments were made:
I favour the position that the insurance company should have asked for a declaratory order that it was under no duty to defend because of the misrepresentation of the insured...
Insurers, in my opinion, should take the initiative if they oppose any obligation or apparent obligation to defend under the terms of the policy...Prompt action by the insurer is required...
...[A]n application by [the insurer] for a declaratory order should have been brought in a timely fashion. If the insurer is able to establish misrepresentation on a material non-disclosure and the facts are undisputed then it seems to me to be in the interests of both parties and the court have an early determination of the issue of the duty to defend.25 [emphasis added]
Apart from the highlighted words, which apparently require that the facts be undisputed – although it should be noted that the comment is made in the context of a duty to defend application - those remarks reflect the position I am advocating in this paper. For reasons already stated, I question the need for the absence of any dispute as to the facts (other than facts that may be in dispute between the insured and the plaintiff in the underlying litigation) in an insurer's application. The desire for an early and economical resolution of the validity issue, and the unfairness of requiring an insurer to defend the insured where the policy will ultimately be found to have been void ab initio, should outweigh any concern regarding a fact-finding exercise in the application process. That procedure is designed to include, to a limited degree, a determination of disputed facts, just as a summary judgment motion is so designed. If the dispute as to facts exceeds that limited ability, then the court will dismiss the application on that basis.
Had a counter-application been made in IT Haven
With one exception,26 there is no indication that the extrinsic evidence that the insurer in IT Haven sought to introduce involved facts that were in dispute between the insured and the plaintiff in the underlying litigation. Had the insurer made a counter-application, it is my view that that application, including the extrinsic evidence necessary to support it, ought to have been considered, other than with respect to the single alleged misrepresentation which involved a matter in dispute in the underlying action. As previously stated, there is no compelling reason why the resolution of the issue of the validity of the insurance policy should be delayed in those cases where the extrinsic evidence necessary for that resolution involves matters that are not in dispute between the insured and the plaintiff in the underlying litigation.
A hypothetical reason for precluding an insurer's application
It might be argued that a factual matter relied upon by the insurer, and which the allegations made in the pleadings indicate not to be a matter in dispute, may later become such a matter should the statement of claim be amended; or that for some other reason as yet unknown it might at some point become a matter in dispute between the insured and the plaintiff. Were it accepted, that hypothetical argument would effectively bar any pre-trial application made by the insurer for a declaration that the policy is void. Just as it was held in Slough Estates that the mere allegation by the insurers that there had been non-disclosure of material information was not sufficient to permit the insurers to escape their duty to defend the insured, the mere possibility that the matter in question might later become a matter in dispute between the insured and the plaintiff should not be sufficient to freeze the ability of the insurer to obtain an expeditious and economical resolution of the validity of the insurance policy issue.
Trial within a trial
The application judge in IT Haven referenced the admonition in Monenco Ltd. v Commonwealth Insurance Co.27 to avoid a duty to defend application from becoming a "trial within a trial", or to "look at 'premature' evidence, that is, evidence which, if considered, would require findings to be made before trial that would affect the underlying litigation".28 While a counter-application by the insurer might well be termed a "trial within a trial", it would not be so in the context of the duty to defend application. It would rather constitute a "trial within a trial" within the context of the insurer's separate and independent application on an issue entirely unrelated to that of a duty to defend (other than potentially having the consequence of precluding any such duty).
The "trial within a trial" issue ought no more to be a matter of concern than a summary judgment motion (as previously indicated, a remedy that is available only in an action, and not as a response to an application). Just as in the case of motions for summary judgment, the application procedure is designed to resolve, in the proper case, issues of contested facts. In fact, a counter-application on the issue of the validity of the insurance policy would effectively be a form of motion for summary judgment in those situations where that procedure is unavailable.
The concern about "findings to be made before trial that would affect the underlying litigation" is, to a large extent, a restatement of the concern raised in Slough Estates not to entertain factual questions that are in dispute between the insured and the plaintiff in the underlying litigation.
The policy goal of resolving the issue of the validity of the policy expeditiously and economically
The application judge in IT Haven referred to this generic policy goal saying, in the context of the insured's duty to defend application, that "to allow such extrinsic evidence will defeat the 'need to decide the coverage issue expeditiously'".29 As previously mentioned, there is a similar and equal need to decide the validity issue expeditiously and economically. Furthermore, the application judge's statement (reproduced above) that "[The insurer] relies in part on expert opinion evidence to establish such materiality which at least in part demonstrates why the alleged breach of the material information clause in the Policy cannot possibly be relied upon at this stage of the proceedings"30 is incorrect in view of the statement made in Halifax Insurance (also reproduced above) that "it is not uncommon that expert evidence is helpful to the court [on a duty to defend application] in the interpretation of the insurance coverage".31
Section 124(6) of the Insurance Act
On a final note, the application judge's reference to s. 124(5) and (6), and particularly subs. (6), of the Insurance Act32 does, at first glance, raise some concern. Section 124(6) provides that "The question of materiality in a contract of insurance is a question of fact for the jury, or for the court if there is no jury". The application judge said that these provisions "strongly suggest that issues of materiality should be proven at trial".33
Materiality is undoubtedly a question of fact, but there is no reason why that issue cannot be resolved, in a suitable case, by "the court" which hears an insurer's application for a declaration that the policy is void. There is no substantial reason, in other words, to limit the meaning of "the court" in s. 124(6) to a judge presiding at a trial.
That still leaves, however, the provision that, where there is a jury, the question of materiality is a question "for the jury". While that provision appears on its face to be clear, that does not mean that it cannot, and ought not, be interpreted in a manner consistent with the achievement of policy goals.
At the pre-trial stage, a jury notice is just that: it is a notice that one of the parties requires the trial to be held with a jury. At that stage of the action, there is no jury. Section 124(6) contains the words "or for the court if there is no jury". The subsection therefore can readily be interpreted as contemplating not just the situation where it is a trial by judge-alone, but also the pre-trial situation where there is no jury as yet. It can be read, in other words, as permitting "the court" – i.e. a judge - to determine the issue of materiality both before trial, when "there is no jury", and at trial, if it is a trial by judge-alone.34 Not only is that a viable and reasonable interpretation, but it avoids the potential inability to resolve the issue of the validity of the insurance policy at an early stage. Otherwise, an insured could create that inability by the simple expedient of filing a jury notice (assuming the vehicle for the coverage dispute is an action in which a jury notice can be filed).
An early and economical resolution of a dispute regarding the validity of an insurance policy is just as significant and profound a policy goal as the early resolution of the duty to defend issue. Section 124(6) should be interpreted with that consideration in mind.
POSTSCRIPT – The Family and Children's Services decision
Following completion of this paper, the decision in Family and Children's Services of Lanark, Leeds and Grenville v Co-operators General Insurance Co.35 was released. The decision is not directly on point. It involved counter-applications by the insureds and the insurer. The insureds sought a declaration that the insurer had a duty to defend, while the insurer's application was for a declaration that both the duties to defend and to indemnify were excluded by similar policy exclusions in each of two relevant policies (one a CGL policy and the other a Professional Liability policy).36 The decision did not involve the question whether the policy was void ab initio because of a material misrepresentation or non-disclosure by the insureds.
One of the arguments made by the insureds, which had been accepted by the application judge, was that the question whether the exclusions had the effect of nullifying coverage was an important issue that ought not be determined on a duty to defend application.37The insureds "argued that declarations in their favour could be made on their applications, but that a declaration against their interest could not",38 to which the court responded "There is no basis for the application judge's acceptance of this seemingly asymmetrical treatment of [the insureds], on the one hand, and the [insurer], on the other."39 That reasoning applies equally to the situation considered in this paper – i.e. an insurer ought to have a right to make an application, or counter-application, on the enforceability of the policy, just as the insured has a right to make a duty to defend application.
Regarding the matter of determination of contested issues of fact, the court said:
Rule 14.05(3)(d)...provides that a proceeding may be brought by application where the relief claimed is the determination of rights that depend on the interpretation of a contract. An application will however be converted to an action where there are material facts in dispute, complex issues requiring expert evidence or the weighing of evidence, or other need for discoveries or further pleadings...40
[In this case, t]here were no material facts requiring a trial...[the application judge] could and should have addressed both (i) the scope and effect of the data exclusion clauses in the policy, and (ii) [the insureds'] argument that giving effect to the exclusion clauses would nullify coverage under the policies.41
The references both to "material facts in dispute" and "material facts requiring a trial" create a slight, but important, ambiguity. There can be "material facts in dispute" which nevertheless can be resolved on an application in the same way that they can be resolved on a motion for summary judgment. Not all "material facts in dispute", in other words, are "material facts requiring a trial", or "complex issues requiring...the weighing of evidence". Whether this decision eliminates that distinction and requires a trial in every case involving the interpretation and applicability of exclusion clauses where there are material facts in dispute, regardless of whether an application judge is able to resolve the dispute, is a matter that will await further clarification.
The situation considered in this paper, however, involves a significant difference. The situation here involves an application for a declaration that a policy is void ab initio for material misrepresentation or non-disclosure. An application of that nature would be made under rule 14.05(3)(h), rather than (d). Subclause (h) authorizes a proceeding to be brought by application "in respect of any matter where it is unlikely that there will be any material facts in dispute requiring a trial" (emphasis added). Were the likelihood (or reality) of a dispute as to material facts sufficient per se to preclude a resort to the application procedure, there would be no need for the words "requiring a trial".42
There is no reference in subclause (d) (or in any of the subclauses other than (h)) to "material facts in dispute", and the fact that subclause (h) – the catch-all category – expressly refers to "material facts in dispute requiring a trial" should be viewed as a strong indicator that the same condition regarding material facts in dispute – that is, those requiring a trial - ought to apply throughout rule 14.05(3).43
There should be little debate about the proposition that issues, and particularly fundamental issues, should be resolved at an early stage whenever reasonably possible. That goal was embraced both in Halifax and IT Haven. There should not be any strict or hard-and-fast rule that precludes early resolution merely because a dispute is raised about a material fact(s). It may well be that the application judge will be able to make a determination of that dispute. It should not, for example, be very difficult in many cases to make a determination whether a misrepresentation was made, or whether the misrepresentation went to a matter that was material to the risk, even where either or both are contested issues.
The ability to make an early determination of an important issue such as the enforceability of an insurance policy ought not to depend on the accident of whether the issue is raised in an application rather than in a summary judgment motion.
Having stated that "there were no material facts requiring a trial", the court in Family and Children's Services made the determination that it said the application judge should have made, and held that the duty to defend (and of course the duty to indemnify as well) was erased by the exclusion clauses in the policies.44
I acknowledge and am grateful for input from Howard Borlack and Theresa Hartley.
1 IT Haven v Certain Underwriters at Lloyd's, London 2020 ONSC 7835.
2 Halifax Insurance Co. of Canada v Innopex Ltd. (2004) 72 O.R. (3d) 522, C.A. at para. 37.
3 Halifax Insurance, at para. 55.
4 IT Haven, at para. 23.
5 Paras. 15, 17, 18, 25-30, 32-36, 38, 41, 42, 45, 47 and 48 of the reasons.
6 IT Haven, at para. 38.
7 IT Haven, at para. 39.
8 IT Haven, at para. 40.
9 The Agresso decision cited below, where similarly there was no counter-application by the insurer, might justify the insurer's approach in IT Haven, although in Agresso the facts were not in dispute so that there was no need to consider the applicability of the general rule in duty to defend applications that extrinsic evidence is inadmissible.
10 The significance of any overlap is dealt with below in the consideration of the Slough Estates decision.
11 Agresso Corp. v Temple Insurance Co. 2007 BCSC 19, affirmed 2007 BCCA 559.
12 Agresso, at para. 11.
13 (1994) 20 O.R. (3d) 429, Ont. G.D. Among the many cases that have followed Slough Estates are Sydie v Murad 2011 ONSC 5781 and Desmond v Guardian Insurance Co. of Canada (1995) 167 N.B.R. (2d) 93, Q.B.
14 Slough Estates, at para. 8.
15 Slough Estates, at para. 8.
16 This is unlike the situation where the insurer asserts a breach of condition by the insured. In that situation, there is case law that states that the mere allegation by an insurer that there was a breach of condition by the insured is sufficient to relieve it of the duty to defend (subject, of course, to an application or other proceeding by the insured to seek a declaration or order that a defence is owed by the insurer): Royal and SunAlliance Insurance Co. of Canada v Fiberglas Canada Inc. (1999) 12 C.C.L.I. (3d) 282, Ont. G.D. at paras. 24-33 reviews some of that case law. The reason given for the distinction (at para. 33) was that "Material non-disclosure may render the contract voidable at the option of the innocent party but does not render the contract void ab initio. It continues in existence until adjudged otherwise. Where a breach of condition is asserted, however, the party so asserting is not denying the existence of the contract but rather is insisting on applying the principles of contract enforcement, one of which is that a breach of condition excuses the innocent party from further performance."
17 Slough Estates, at para. 8.
18 There is further discussion of this issue in the Postscript at the end of this paper.
19 Montrose Chemical Corp. v Superior Court (1993) 6 Cal 4th 287.
20 Slough Estates, at para. 47.
21 Slough Estates, at para. 47, reproducing passages from Montrose Chemical at p. 14.
22 Slough Estates, at para. 48. SCS Western Corp. v Dominion of Canada General Insurance Co. 1998 ABQB 152 ostensibly agreed with Slough Estates, but failed to include the proviso, which I believe is present in the Slough Estates decision, that an early determination of the validity issue is appropriate so long as there is no need to make a determination regarding facts which are in dispute between the insured and the plaintiff in the underlying litigation. The court appears to have imposed a blanket prohibition on pre-trial determination of the validity issue where any facts are in dispute (see paras. 32-45). SCS Western therefore took the same approach as taken in the appeal decision in Comeau, as to which see below.
23 Comeau v Roy (1998) 207 N.B.R. (2d) 313, Q.B. at para. 32.
24 (1999) 217 N.B.R. (2d) 242, C.A.
25 Comeau, at paras. 18-20.
26 One of the misrepresentations alleged by the insurer to have been made by the insured was that it never incorporated any software or products designed by others into its design, whereas the allegations in the U.S. action demonstrated that they did precisely that, and thus infringed on the intellectual property of the plaintiff in that action: IT Haven, at para. 24.
27 2001 SCC 49 at para. 37.
28 IT Haven, at para. 28.
29 IT Haven, at para. 38.
30 IT Haven, at para. 39.
31 Halifax Insurance, at para. 37.
32 IT Haven, at para. 39.
33 IT Haven, at para. 39.
34 In both Hanson v Allstate 2017 CarswellOnt 21749, S.C.J. (at para. 33 and following) and Misirlis Estate (Trustee of) v Continental Insurance Co. 1999 CarswellOnt 1163, S.C.J. (at paras. 36-46), reversed on other grounds 2000 CarswellOnt 407, C.A., the insured made a motion for summary judgment and, in both instances, despite making express reference to s. 124(6), the court proceeded to determine the issue of materiality on the motion. It should be noted, however, that there is no indication that a jury notice had been delivered in either case.
35 2021 ONCA 159.
36 Family and Children's Services, at para. 30.
37 Family and Children's Services, at paras. 39 and 41.
38 Family and Children's Services, at para. 45.
39 Family and Children's Services, at para. 47.
40 Family and Children's Services, at para. 48.
41 Family and Children's Services, at paras. 50-51.
42 It is interesting to note that the words "requiring a trial" echo the language in rule 20.04 regarding motions for summary judgment.
43 Useful reference may again be made to the passages from the Halifax decision reproduced at the start of this paper: An application "is a summary procedure well suited to determining a duty to defend issue which necessarily arises...as a preliminary matter...That is not to say that evidence is never permissible on a duty to defend application." Those comments apply equally to an application to determine the validity/enforceability of a policy. Support for this view is found in Slough Estates as well. It is also worth repeating the passage in Monenco reproduced above: The court should avoid "look[ing] at 'premature' evidence, that is, evidence which, if considered, would require findings to be made before trial that would affect the underlying litigation". Had the SCC considered it appropriate to avoid looking at any evidence, it would have said so.
44 Family and Children's Services, at para. 63.
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