The Duty to Defend and The Duty to Indemnify - Risk ...
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The Duty to Defend
and
The Duty to Indemnify
About RMC
2
National Covage
3
PRESENTERS
Messica Bari Caitlin Amanda Jennifer
Donati Mahoney Kostek Therrien
Maisonneuve Cox & Palmer CBM Lawyers Kelly Santini LLP
Montreal Moncton Edmonton Ottawa
4
TOPICS
1. What Triggers the Duty to Defend
2. Cross Indemnification Clauses
3. Defend vs Indemnify
4. Managing Duty to Defend Files
5
What Triggers the Duty to Defend
Messica Bari
Donati Maisonneuve
Montreal
6
WHAT IS THE DUTY TO DEFEND?
In Quebec, pursuant to section 2503 of the Civil Code of Quebec
The insurer is bound to take up the interest of any person entitled to the
benefit of the insurance and assume his defence in any action brought
against him.
Legal costs and expenses resulting from actions against the insured,
including those of the defence, and interest on the proceeds of the insurance
are borne by the insurer over and above the proceeds of the insurance.
Public order
Any derogatory disposition is null
7WHAT DOES THE DUTY TO DEFEND IMPLY?
Right to select counsel
General rule
¢ Single counsel
¢ Exception
Insurer initially investigates claim and denies coverage
or
Insured is successful in the Wellington Motion
8WHAT DOES THE DUTY TO DEFEND IMPLY?
Exception: separate counsel
¢ Conflict of interest
Insured vs. insurer
¢ Coverage dispute
Co-insured with divergent interests
Burden of proof
¢ Insured must demonstrate a conflict of interest
9WHAT DOES THE DUTY TO DEFEND IMPLY?
Defence costs and claims expenses
Extrajudicial costs
Arbitration fees
Experts fees
Lawyers fees
Witness fees
Insofar as those costs related to the defense against claims for covered damages
Caveat: Partial coverage does not always lead to an apportionment of defense costs
10CASE LAW
Hanis v. Teevan Hanis v. Teevan, 2008 ONCA 678
¢ Same defence costs incurred in the defence of covered and uncovered claims
and
¢ Impossibility to allocate costs
à Insurer bears entirety of costs
Axor Construction Canada inc. v. Carrelages SerCo inc., 2015 QCCS 480
¢ Potential exclusions of coverage
¢ Insurer ordered to reimburse all legal and extrajudicial costs incurred
11HOW IS THE DUTY TO DEFEND TRIGGERED?
The pleadings rule
Step 1: “Mere possibility” of coverage
Simple demonstration
¢ Pleadings fall within coverage
¢ Alleged extrinsic evidence
Burden of proof: low
Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33
Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49
12HOW IS THE DUTY TO DEFEND TRIGGERED?
Step 2: Application of an exclusion
Clear and unequivocal
Burden of proof: high
Step 3: Exception to the exclusion
13DUTY TO DEFEND LITIGATION
Application for a declaratory judgment
The Wellington Motion
Used to force the insurer to take up the insured’s defence
Analysis based on true nature of pleadings + documentation
Limitation period: three (3) years
Pursuant to section 2925 of the Civil Code of Quebec
An action to enforce a personal right or movable real right is prescribed
by three years, if the prescriptive period is not otherwise determined
Start: Date of service of the Statement of claim
Boralex inc. v. AIG Insurance Company of Canada, 2015 QCCS 972
14POTENTIAL COVERAGE OUTCOMES
Four (4) possible outcomes
1. The claim is clearly covered by the Policy
¢ Insurer must defend at its own expense
2. The claim is clearly not covered by the Policy
¢ Insurer does not have and obligation to defend
3. The judge is unable to conclude if the Claim is covered or not
¢ Insurer must defend at its own expense;
4. Some portions of the Claim are covered, other are not
¢ Must defend the covered portion
¢ Possibility to share expense
Géodex inc. et al. v. Zurich Insurance Company et al., 2006 QCCA 558
15RECENT ILLUSTRATION IN QUEBEC
9241-1842 Québec inc. v. Peel Properties inc., 2020 QCCS 2894
Insurer’s argument
No coverage under the terms of the Policy
¢ Economic and financial damages do not constitute "damage"
¢ The facts of the complaint do not constitute an "occurrence"
Ruling
¢ In favor of the insured
¢ Claim allegations sufficiently broad to lead to a claim for damages
¢ Insurer has duty to defend
Important
¢ Denial of coverage letter must invoke all potential exclusions
16BASIC STEPS TO DETERMINE IF THE CLAIM
IS COVERED
1. Policy wording
Insuring agreement
Definitions
Exclusions
Duty to defend
Claims expenses
2. Pleadings
Do not limit yourself to the wording used!
Analyze the true nature of pleadings
3. Alleged documentation
17COMMERCIAL GENERAL LIABILITY (“CGL”)
INSURANCE POLICY
Insuring agreement
“To pay on behalf of the Insured all sums which the Insured shall become legally
obligated to pay as compensatory damages because of property damage
caused by accident”
Important definitions
Property damage
Accident
Occurrence
Typical exclusion
Work performed
¢ Standard “work performed” exclusion precludes coverage for damage to the
insured’s own work once it is completed
18COMMERCIAL GENERAL LIABILITY (“CGL”)
INSURANCE POLICY
Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33
Pleadings
¢ Breach of contract and negligence in construction of buildings
¢ Damages caused by water leaking into each of the four buildings
Coverage B – Property Damage Liability
¢ Property damage caused by “occurrences” or “accidents”
19COMMERCIAL GENERAL LIABILITY (“CGL”)
INSURANCE POLICY
Definitions
¢ Property damage: destruction of tangible property which occurs during the
policy period, including the loss of use thereof at any time resulting therefrom
¢ Accident: includes continuous or repeated exposure to conditions which
result in property damage neither expected nor intended from the standpoint
of the Insured
¢ Occurrence: means an accident, including continuous or repeated exposure
to substantially the same general harmful conditions
20COMMERCIAL GENERAL LIABILITY (“CGL”)
INSURANCE POLICY
Work performed Exclusion
¢ Property damage to work performed by or on behalf of the Named
Insured arising out of the work or any portion thereof, or out of
materials, parts or equipment furnished in connection therewith
Duty to defend
¢ Policies required insurer to defend and indemnify when Progressive
legally obligated to pay damages because of property “damage”
caused by an “occurrence” or “accident”
21COMMERCIAL GENERAL LIABILITY (“CGL”)
INSURANCE POLICY
Insurer’s position:
¢ “Property damage” does not result from damage to one part of a
building arising from another part of the same building
¢ When a building is constructed in a defective manner, the end result
is a defective building, not an accident
¢ Interpreting accident to include defective workmanship would convert
CGL policies into performance bonds
22COMMERCIAL GENERAL LIABILITY (“CGL”)
INSURANCE POLICY
Ruling
Step 1: “Mere possibility” of coverage
¢ “Property damage”
¢ includes damage to any tangible property according to plain language
of the definition
¢ no restriction to third-party property in the definition
¢ Faulty workmanship can constitute an “accident”
¢ need not be a sudden event
¢ can result from continuous or repeated exposure to conditions
¢ Pleadings sufficiently allege property damage and accident
à Mere possibility of coverage
23COMMERCIAL GENERAL LIABILITY (“CGL”)
INSURANCE POLICY
Step 2: Work performed Exclusion
¢ Contra proferentem
Narrow interpretation of the Exclusion
The Exclusion is limited to damage caused by insured to its own
work
¢ Pleadings indicate the involvement of subcontractors
¢ Exclusion does not apply
à Duty to defend is triggered
24PROFESSIONAL LIABILITY INSURANCE
POLICY
Insuring agreement
“The insurer shall pay on your behalf all sums which you become legally obligated to pay as
damages because of any Claim first made against you and reported during the policy period
arising out of an error by you in performing or failing to perform Professional Duties”
Definitions
¢ Claim: A written or oral demand from a third party requesting compensation for damages
arising out of, or an allegation from a third party of, an error, omission or negligent act by
the Insured in the conduct of their Professional Duties. […]
¢ Professional Duties: Professional engineering services performed by the Insured,
provided that such services are in connection with the ordinary and usual course of the
Insured’s practice. Such services include, but are not limited to:
design or specification
(…)
25PROFESSIONNAL LIABILITY INSURANCE
POLICY
Typical Exclusions
¢ Express warranty or guarantee relating to performance, volume, quality cost
or completion date of any services or work
¢ Express contractual penalty including but not limited to liquidated damages
Exception to the Exclusions
• Except to the extent that liability would attach (or be alleged to attach) to
the Insured in the absence of such warranty, term or penalty
26LIMITATION TO THE DUTY TO DEFEND
Intentional fault of a co-insured
Pursuant to section 2464 of the Civil Code of Quebec:
[…] the insurer is never bound to make reparation for the injury resulting
from the insured’s intentional fault. Where there is more than one
insured, the obligation of coverage remains with respect to those insured
who have not committed an intentional fault.
27DENYING THE DUTY TO DEFEND
Consequences
¢ Loss of policy rights
Right to defend the action
Control defence strategy
Exclusive right to settle on behalf of the insured
¢ Breach of contract
Claim for recoverable damages
¢ Defence costs
¢ Bad faith
Punitive damages
¢ Not applicable in Quebec
¢ Section 1621 of the Civil code of Quebec
28Cross Indemnification Clauses
Amanda Kostek
CBM Lawyers
Edmonton
29Game Changers:
the impact of contractual insurance clauses
and cross indemnification clauses on the
duty to defend
Presented by: Amanda KostekIn a trilogy of Supreme Court of Canada decisions, Pyrotech Products Ltd. v. Ross Southward Tire Ltd., [1976] 2 S.C.R. 35, Cummer-Yonge Investments Ltd. v. Agnew-Surpass Shoe Stores Ltd., [1976] 2 S.C.R. 221, and Smith v. T. Eaton Co., [1978] 2 S.C.R. 749, the Supreme Court of Canada concluded that where a landlord covenants to insure, the tenant will benefit from it, unless there is something inconsistent with such a result contained in the lease.
In the Cummer decision one party took out more insurance
than what was required in the contract. The Court
concluded that the tenant did not get the benefit of that
extra insurance:
[59] I can see no reason for extending the exculpatory
clause beyond its words which, as above stated, cover only
damage to the building. Similarly, I can see no reason to
extend the obligation to insure beyond its terms to cover
what is not damage to the building. The tenant cannot claim
the benefit of any insurance which the owner took beyond
what the lease required and its relief from liability cannot
protect it beyond the actual wording of the stipulation in the
lease. There is, therefore, no distinction to be made between
the insured and the uninsured portions of the rental income
loss.In Wight v. TGS Properties Ltd., 2008 ABQB 745, a property management agreement contained a provision requiring the property owner to obtain insurance for bodily injury and property damage, and the property manager was to be listed as an additional insured. The provision directed that the owner would save the property manager harmless from any liability insured against. Although the property manager had its own insurance, the Court accepted that there was no obligation on the part of the property manager to obtain any insurance, nor to contribute to insurance premiums.
Cross Indemnification and
Insurance clausesIn Madison Developments Ltd. v. Plan Electric Co., 1997
CarswellOnt 3797, the Ontario Court of Appeal considered
the implications of a building owner agreeing to obtain Fire
Insurance while a subcontractor was required to maintain a
CGL policy. It concluded that there would be no purpose for
the insurance provisions to be included in the contract if
that insurance was not meant to cover both parties, and it
would not make business sense to duplicate insurance:
[11] …This is a sizable building construction project in which
the contractor has agreed with the owner to obtain
comprehensive fire insurance covering losses arising from any
cause. …… if a fire occurred it would most likely be caused by the negligence of one of those subcontractors. Given the contractor's obligation in favour of the owner to obtain comprehensive fire insurance it makes no business sense for each subcontractor to pay premiums to duplicate that coverage. … [12] The separate obligation of the subcontractor in Article V to obtain liability insurance is, in a way, akin to the separate obligation of the tenant to repair. The subcontractor's obligation to obtain liability insurance, which would cover many risks beyond that of fire, can be written with an eye to the respective obligations of the subcontractor and the contractor. In other words, the liability insurer should know in setting the premium that the subcontractor is protected against fire- related losses to the owner or general contractor caused by its negligence.
In Alberta Importers & Distributors (1993) Inc. v. Phoenix Marble Ltd., 2008 ABCA 177, the lease required the tenant to contribute to the landlord’s premiums for fire insurance and the tenant was required to obtain a CGL policy that included the landlord as a named insured for tenant’s fire liability. The issue was whether that amounted to a covenant on the part of the landlord to insure. The Alberta Court of Appeal concluded it did.
The Court of Appeal paid special attention to the type of
insurance mentioned in the lease in interpreting the
obligations of the parties:
… Second, the Appellant misapprehends the nature and
purpose of general liability insurance as opposed to
property insurance. The former covers claims by third
parties and benefits the landlord. If the tenant's negligence
injures a third party, the tenant's liability insurance
indemnifies the landlord against such claims which the
property insurance would not cover. The policy also
protects the landlord against claims for joint and several
liability and protects against an insolvent tenant. The
tenant's obligation to acquire liability insurance is, in our
opinion, compatible with the landlord's express and
implied covenant to acquire property insurance and does
not shift liability for damage by fire from the landlord to
the tenant.In Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., a welding contractor engaged by the Landlord caused a fire resulting in losses over $10 Million. The tenant’s policy limits were exhausted, and the tenant sued both the landlord and subcontractor. The subrogated losses were $10.8 Million and uninsured losses were approx. $4.1 Million. The Landlord argued that the Tenants’ covenant to insure meant that it bore all risk of loss. However, the lease also contained an indemnification clause in favour of the tenant.
The Court of Appeal concluded that the Tenant, by agreeing to insure, relieved the landlord of liability, unless there was express language in the contract to the contrary. The Court went on to endorse the Lincoln approach:
i. the tenant was obliged to obtain the specific insurance
required by its insurance covenant;
ii. the tenant had to look to its own insurer for any damage
that was the subject of the tenant's insurance obligation,
whether or not caused by negligence, and the tenant
and its insurer were restricted from claiming against the
landlord for recovery for such damage;
iii. if the landlord's negligence caused any damage that the
tenant was not required to insure against, the landlord
was obliged to indemnify the tenant for such damage;
and
iv. apart from negligence, the landlord had no liability to
the tenant for any damage listed in the landlord’s
indemnity covenant, whether or not the tenant had to
insure for such damage.In this case, the Tenant failed to get the insurance it was
supposed to. The Court held that the Tenant was still
barred from pursuing any claim that would have been
covered by insurance:
[88] Thus, had the Tenant complied with its obligations
under the Lease, neither it nor its insurer would have any
viable subrogated claim against the Landlord for loss or
damage to the Tenant's property arising from the fire. The
Tenant cannot benefit from its admitted breach of s. 8(5)
of the Lease to found a subrogated claim in respect of
such loss or damage against the Landlord. And, as I have
said, having assumed the risk of fire loss or damage to its
own property, the Tenant bears the risk of underinsuring
for such loss or damage.In William Osler Health Centre v. Compass Construction Resources Ltd., 2015 ONSC 3959, a general contractor covenanted to insure a project at a hospital. The work was subcontracted out, and a loss resulted from the work of the subcontractor. The subcontractor attempted to have the cross claim against it struck on the basis that the agreement to insure provided by the general contractor was meant to cover all subcontractors.
The Court looked at the terms of the agreement, and noted
that the amount Insured for was only a fraction of the insurance
required for the entire hospital, and as such, the insuring
agreement was only meant to cover the job:
[39] On a basic level, if Compass' insurance coverage were
intended to insure the entire Hospital as a "property in the course
of construction," the premiums and coverage limits stipulated in
the covenant to insure would be much higher — they would more
closely resemble the Hospital's own insurance coverage. It thus
stands to reason that the covenant to insure was not intended by
either party to cover damage done to the entire Hospital.
As a result, the covenant to insure was considered a limited
one.In Royal Host GP Inc. v. 1842259 Ontario Ltd., 2018 ONCA
467, the issue was whether the tenant lost the benefit of the
landlord’s covenant to insure as a result of qualifying
language in the lease. The lease required the landlord to
obtain insurance, and premiums were paid, in part, but the
tenant. However, the lease also contained the following
clause:
Notwithstanding the Landlord's covenant contained in this
Section 7.02, and notwithstanding any contribution by the
Tenant to the cost of any policies of insurance carried by the
Landlord, the Tenant expressly acknowledges and agrees that
(i) the Tenant is not relieved of any liability arising from
or contributed to by its acts, fault, negligence or
omissions, and …The Court of Appeal concluded that in normal circumstances a tenant is liable for its negligence. Therefore, the focus of the Court should be on whether the contractual provisions of the lease displace ordinary principles of negligence law. Clause 7.02 was clear and unambiguous. As a result, the Court interpreted the lease to say that the tenant had the benefit of the landlord’s insurance, except where the tenant was negligent.
The Take Away: 1. The terms of the contract are king. 2. Review lease agreements with attention paid to Insurance provisions and any qualifying language surrounding them; 3. Consider the type of insurance and amount of insurance contracted for; and 4. When in doubt, get a legal opinion.
Defend vs Indemnify
Jennifer Therrien
Kelly Santini LLP
Ottawa
48TYPICAL SCENARIO
¢ The common scenarios in which the duty to defend
and the duty to indemnify apply are cases involving
the Occupier’s Liability Act such as slip and fall
cases.
¢ One defendant (i.e a property owner) entered into a
agreement with another party (i.e. a winter
maintenance contract).
49TYPICAL SCENARIO
¢ The Winter Maintenance Agreement included
provisions requiring the winter maintenance
contractor to indemnify the property owner for any
losses, claims, and settlements that may arise out
of the contractor’s operations.
¢ The winter maintenance contractor is typically
required to add the property owner as an additional
insured under their general commercial liability
policy.
50KEY DIFFERENCES
Duty to Defend Duty to Indemnify
¢ The duty to defend speaks to ¢ The duty to indemnify speaks
the question of who will pay the to the question of who will pay
defence costs. the damages.
¢ The duty to defend is broader ¢ The duty to indemnify arises
than the duty to indemnify and only when the allegations are
is also independent of the duty proven at trial.
to indemnify. The duty to
defend arises when a claim
alleges acts or omissions that
fall within the policy coverage.
51KEY DIFFERENCES
Duty to Defend Duty to Indemnify
¢ The duty to defend is to be ¢ The duty to indemnify is on the
decided based on the insured’s actual liability for the
pleadings and whether they plaintiff’s damages, and only
present claims with a mere after the underlying litigation is
possibility of being covered by concluded.
the policy, and a party should
seek a decision on this as
expeditiously as possible and
as a preliminary issue in the
lawsuit.
52KEY DIFFERENCES
Duty to Defend Duty to Indemnify
¢ You require any insuring ¢ You can still seek indemnity
provision in a contract to trigger from another party even
the duty to defend. without the existence of an
indemnification clause in a
contract.
53THE DUTY TO INDEMNIFY ANALYSIS
¢ The duty to indemnify is far less litigated than the duty to
defend.
¢ Harris v. Memorial Boys’ and Girls’ Club, 2008 CarswellOnt
4085 (Ont. S.C.J.), provides a helpful analysis of the
considerations of the court in determining whether an
indemnification provision is triggered.
54THE DUTY TO INDEMNIFY ANALYSIS
¢ The proximity and causality tests - if the facts show that the
loss was proximately or causally connected to an act or
omission for which one party agreed to indemnify another,
then the indemnity clause is triggered.
¢ In cases where the court was satisfied that there was either an
independent cause of action against the party seeking
indemnity, or a finding of negligence against that party
following trial, the indemnity clause would not apply.
55Managing Duty to Defend Files
Caitlin Mahoney
Cox & Palmer
Moncton
56TIPS FOR MANAGING FILES Brief Outline: 1) Appoint Separate Defence Counsel and Coverage Counsel 2) Internally separate file or “splitting the file” 3) File Investigation 4) Pitfalls 5) Miscellaneous
TIPS FOR MANAGING FILES
1) Appoint Separate Defence Counsel and Coverage Counsel
The need for both coverage counsel and defence counsel arises when there is a conflict
of interest, or reasonable apprehension of conflict of interest between a counsel’s duty to
an insurer and a counsel’s duty to the insured
Portage la Prairie Mutual Ins Co. v. Madawaska Planning Commission 2006 NBQB 360
¢ Commission was sued by Maple Lodge for negligent approval of plans & specs., permits etc.
¢ Portage and St. Paul alleged no duty to defend (allegations within “professional services” exclusion)
NBQB:
¢ There was a reasonable apprehension of conflict of interest between insurers Portage and St.
Paul and the insured, Commission; because there was a risk the insurers may conduct defence so
that liability would be found as a result of professional service (no coverage)
¢ Commission was entitled to appoint independent counsel at the expense of insurers
¢ Neither Portage or St. Paul had appointed separate coverage counsel and defence counsel in
their handling of the claim
Failure to appoint separate defence counsel and coverage counsel likely leads to the insurer
losing control of the defence but still having to pay legal costs for the defence, if a reasonable
apprehension of conflict of interest arisesTIPS FOR MANAGING FILES
Reasonable Apprehension of Conflict of interest
Duty to defend arises but not necessarily a duty to indemnify:
All or part of claim may not be covered by the insurance policy
¢ duty to defend the claim but indemnity is in issue as all or part of the claim fall outside scope
of coverage
All or part of claim may fall under an exclusion of the policy
All or part of the claim may arise from conduct that is considered a breach of the policy
If a suspected or potential coverage issues arise on a claim, we recommend the following:
1) Retain and appoint of coverage counsel to attend to the coverage issues;
2) Appoint separate defence counsel blind to the coverage issue;
3) internally “split the file” so that coverage counsel and defence counsel report to
separate adjusters
§ Brockton v Frank Cowan Co, (2002), 57 O.R. (3d) 447); Morrison v. Co-operators 2004 NBCA 62,
Markham (City) v. AIG Insurance Company of Canada 2020 ONCA 239TIPS FOR MANAGING FILES
2) Splitting the file
Markham (City) v. AIG Insurance Company of Canada 2020 ONCA 239
¢ Plaintiff injured at rink while watching a hockey game;
¢ City rented the hockey rink to Markham Waxers Hockey Club & Minor Hockey Association (“Waxers”);
¢ Plaintiff sued the City and Hockey Canada (3 parties and multiple insurers involved)
¢ City was insured by Lloyd’s and an additional insured on Hockey Canada’s policy with AIG
¢ AIG and City brought competing applications to determine which insurers had a duty to defend;
¢ AIG claimed:
AIG and Lloyd’s had a concurrent duty to defend the City and should share costs to defend;
AIG had a right to participate in the defence, to retain and instruct counsel with Lloyd's
¢ Lloyd’s claimed:
No duty to defend and if there was a concurrent duty to defend AIG should not participate in defence
¢ Trial judge: Lloyd’s had no duty to defend the City, AIG had to defend the action and pay costs of
defending action and could not participate in the defence. AIG appealed.TIPS FOR MANAGING FILES
2) Splitting the file
Markham (City) v. AIG Insurance Company of Canada 2020 ONCA 239
ONCA ruled:
¢ AIG and Lloyd’s each had a duty to defend the City;
¢ AIG policy covered City for liability regarding Hockey Canada operations; but not the City’s negligence;
¢ Allegations the City failed to input reasonable safety measures at rink (netting to prevent puck from
striking spectators), fell under Lloyd’s policy
To extent that AIG and Lloyd’s covered the same claims, AIG had a duty to defend up to policy limits and
Lloyd’s was excess insurer; but Lloyd’s had sole duty to defend City against claims outside AIG’s policy
¢ AIG was entitled to contribution from all other insurers who had a concurrent duty to defend the
insured (Lloyd’s)
¢ AIG and Lloyd’s ordered to pay equal share of defence costs pending final disposition of the action
¢ AIG proposed a “split file” protocol, which the judge approved along with some additional conditions.
The “splitting of the file” enabled AIG to participate and have control over the defenceTIPS FOR MANAGING FILES
2) Splitting the file
Markham (City) v. AIG Insurance Company of Canada 2020 ONCA 239
The split file protocol:
1) City's defence as an additional insured would be handled/screened internally; Hockey Canada and Waxers'
information held separately and all information kept confidential from adverse insured party;
2) Physical files would be scanned and converted into digital format upon receipt;
3) File then digitally marked confidential and not to be accessed by any other handler, including handler
responsible for the defence of another adverse insured party (to avoid any perceived or actual "party-
based" conflict of interest between the insured interests);
4) Handlers for the City defence would be different from handlers for the Hockey Canada defence; the
handlers for coverage issues would be different from the handlers for liability issues;
5) Claims handler in breach of "split file" protocol would subject to disciplinary action if confidential information
disclosed;
6) AIG and Lloyd’s would agree upon, appoint and pay for an independent defence counsel, could not be
AIG’s coverage counsel
7) AIG and Lloyd’s would share costs incurred in the City's defence.TIPS FOR MANAGING FILES 2) Splitting the file Markham (City) v. AIG Insurance Company of Canada 2020 ONCA 239 The split file protocol (continued): The Court added these terms: 8) The terms of this proposal must be provided in writing to those involved in managing the defence; 9) Counsel appointed would be instructed to fully and promptly inform the City and Lloyd's of all steps taken in the defence of the litigation against the City such that each would be in a position to monitor the defence effectively and address any concerns; 10) Defence counsel must have no discussion about the case with either coverage counsel; and 11) Defence counsel must provide identical and concurrent reports to the insured and both insurers regarding the defence of the main action.
TIPS FOR MANAGING FILES
2) Splitting the file
Take Away: Multiple parties, insureds and insurers, use a “split file” protocol:
1) If there is more than one insured (adverse to others) than create separate internal file for each;
2) Separate adjusters or handlers for each of the insured and separate adjuster for defence aspect
of file and coverage aspect of file;
3) Digitalize file of insured, mark confidential, and prevent access from other handlers, particularly
handlers of other adverse insured in the matter (or implement disciplinary process to prevent access);
4) Defence counsel is appointed in agreement with other parties/insurers, defence counsel must be
separate from all coverage counsel involved in file;
5) Defence counsel reports only to handlers involving defence of claim, not handlers dealing with
coverage
6) Defence counsel is prohibited from discussing matter with coverage counsel;
7) Defence counsel provides identical, concurrent reports to all insured and insurers re defence of action;
8) “Split file” agreement and particulars regarding defence counsel’s obligations are set out in writing;TIPS FOR MANAGING FILES:
3) File Investigation (multiple parties)
1) Who are all the possible relevant parties in the matter?
2) Is there a relationship between the parties?
¢ Tenant and Landlord
¢ Separate owner of vehicle and driver
¢ Service contract between the parties (snow removal, janitorial services)
¢ Manufacturer of product and vendor or product
3) What documents or insuring agreements reflect the relationship between the parties? Do
we have all of these documents?
¢ All relevant insuring agreements (motor vehicle, home owners insurance policy, CGL, D&O
liability)
¢ Certificate of Insurance
¢ Service contracts (Maintenance Service Agreement, Snow Removal Contract); subcontracts
¢ Supplier Buying Agreement (product liability claims)
¢ If your insured was to be named an additional insured confirm this
was done and obtain policy (or conversely confirm that your insured
has added the additional insured);TIPS FOR MANAGING FILES
3) File Investigation (multiple parties)
¢ Upon review of insuring agreements and other documents:
4) Are there any relevant parties missing from the court action?
¢ Service providers
¢ Manufacturer
¢ Pitfall: A relevant party is missing from the action
If identified early enough, notice can be given to the claimant and the claim may be to
add the relevant missing party
Alternatively, insured may need to add the missing party to the action if ableTIPS FOR MANAGING FILES
3) File Investigation (multiple parties)
¢ Upon review of insuring agreements and other documents:
5) Are there any other parties or insurers which have a duty to defend or indemnify your
insured, or a concurrent duty to defend and/or indemnify your insured?
Review and consider all pleadings (claims, defences, cross claims and third party claim) as well
as the relationship between parties (additional insured, service provider, supplier)
Be mindful of the obligations owed between the parties based on the insuring agreements
and other relevant agreements, as well as the obligations owed between the parties and their
associated insurers (review the agreement, contract, subcontract and all associated policies);
Identify any gaps that arise in coverage pursuant to these documents
¢ i.e. Markham (City) v. AIG, supra; pleadings alleged City was negligent in its own operations
regarding the rink, which fell outside AIG policy that added City as additional insuredTIPS FOR MANAGING FILES:
3) File Investigation (multiple parties)
5) Are there any other parties or insurers which have a duty to defend or indemnify your
insured, or a concurrent duty to defend and/or indemnify your insured?
A. Other party has duty to defend or indemnify your insured completely:
¢ i) duty to defend and indemnify provision; ii) additional insured provision, or iii) primary policy
“…Y shall indemnify, defend, and hold X harmless against and from any and all claims, lawsuits, civil penalties or actions,
costs, liabilities, damages, expenses(including attorneys’ fees) incurred or to be incurred, which may be made or brought
against X by any person, … arising or alleged to have arisen out of the death of or injury to any person …resulted from
any acts or omissions of Y (Supply Agreement)
How do you enforce the other party to fulfill this obligation?
1) Letter to other party putting party on notice of its obligation to your insured and ask that other
party adhere to it obligations to defend and/or indemnify and confirm in writing (coverage counsel)
¢ Enclose and reference specific clauses in insuring agreements; contract, Certificate of Insurance,
etc.
¢ Reference motion if agreement is not forth coming
2) Motion or Application to the CourtTIPS FOR MANAGING FILES:
3) File Investigation (multiple parties)
5) Are there any other parties or insurers which have a duty to defend or indemnify your
insured, a concurrent duty to defend and/or indemnify your insured or vice versa?
B. Other party has concurrent duty to defend or indemnify your insured:
¢ Arises from review of applicable policies and clauses
How do you enforce the other party to fulfill this obligation?
¢ TD General Insurance Company v. Intact Insurance Company 2019 ONCA 5
Plaintiff was a passenger on a boat allegedly injured when the boat struck the shoreline. Plaintiff
sued driver of boat (“D”) and owner (“0”)
D was covered by two policies of insurance, O’s policy (TD) covered D as operator of boat with
permission and D’s homeowner’s policy (Intact) covered operation of watercraft
Application by TD for a declaration that both insurance companies were on equal footing and
had to share equally in the defence and indemnity of D in regards to the Plaintiff’s claim
Trial judge dismissed application but ONCA reversed the decision and issued declarationTIPS FOR MANAGING FILES:
¢ TD General Insurance Company v. Intact Insurance Company
ONCA applied 2 part analysis:
1) Is there overlapping coverage?
¢ Yes
2) Did the insurers intend to limit their obligation to contribute, by what method and in what
circumstances vis-à-vis the insured?
¢ The second question focused on excess insurance clauses, “other insurance clauses”.
ONCA ruled that two policies had identical “other insurance clauses”:
“…If you have other insurance which applies to a loss or claim, or would have applied if this policy did not exist, this policy will
be considered excess insurance and we will not pay any loss or claim until the amount of such insurance is used up
The limiting obligation in the two policies were irreconcilable, both had equal duty to defend
§ Court Application for declaration the other insurer has concurrent duty to defend
§ Splitting file protocolTIPS FOR MANAGING FILES
¢ Pitfall: Gaps in Coverage
Delcor Enterprises Ltd v. Economical Insurance Group, 2015 MBQB 49:
RBC application for order that Bee-Clean (Aviva), or its subcontractor Lawn Boys (Economical) defend
RBC and reimburse RBC legal costs incurred to date
Snow Maintenance Agreement specified Bee-Clean was to clear snow within two hours of a
snowfall between 5:30 a.m. - 7:00 p.m. ("daytime hours"). If it snowed between 7:00 p.m. - 5:30
a.m. ("nighttime hours"), snow clearing had to be completed by 7:30 a.m.. Bee-Clean had to
monitor weather conditions / inspect property to determine if services were needed in accordance
with day/nighttime hours.
Snow Maintenance Agreement had lesser obligations during nighttime hours than in daytime;
Bee – Clean also was required to name RBC as an additional insured.
Claim alleged that black ice caused the Plaintiff’s fall and this ice was caused by freezing rain that
accumulated overnight (nighttime hours) and RBC was negligent in not having 24 hour
monitoring as ATM available 24 hours per day
Justice Greenburg ruled the “gaps” in the maintenance service agreement could lead to RBC being
liable for Mrs. Castle’s fall. Bee-Clean had a duty to defend RBC but only in regard to obligations
covered by the Snow Maintenance Agreement*TIPS FOR MANAGING FILES
¢ Pitfall: Failure to Name Additional Insured
Papapetrou v. 1054422 Ontario Ltd. Eyeglasses 2012 ONCA 506:
Collingwood failed to add Cora Group to its insurance policy as required by service contract
Justice Simmonds, ONCA, ruled that Collingwood’s breach of its contractual obligation to add The
Cora Group as an insured on its policy did not create a duty to defend.
Rather, The Cora Group was entitled to damages for breach of contract.
Delcor Enterprises Ltd v. Economical Insurance Group:
Bee-Clean subcontracted its snow removal duties owed to RBC to Lawn Boys, subcontract was
identical to snow maintenance agreement (indemnity)
Lawn Boys had to name RBC as additional insured, but failed to do so. Justice Greenburg ruled:
“Because Lawn Boys failed to name RBC as an additional insured in its policy with Economical, as it was required
to do under the subcontract with Bee-Clean, Economical has no duty to defend RBC… but Bee Clean has a
right to damages against Lawn Boys for the cost to defend RBC”
¢ RBC did not have contractual right against Lawn Boys, subcontractor of Bee CleanTIPS FOR MANAGING FILES
¢ Pitfall: Allocation of Defence Costs
¢ ...the allocation of defence costs as among insurers who have a concurrent obligation
to defend is essentially a matter of fairness as among those insurers. As such, the allocation
of costs is not an exact science…
…The full and early participation of all insurers who are potentially liable promotes settlement and expedites
the trial process…
Alie v. Bertrand & Frère Construction Co. Eyeglasses, 2002 CarswellOnt
4255
Application for early allocation of defence costs may result in costs being apportioned equally
After the fact determination of allocation of defence costs (after matter is resolved and based on
disposition at trial or settlement)
Pro-rata (costs allocated proportionate to the risk that the underlying action will be resolved in a way
that triggers each insurers obligation to indemnify the insured).TIPS FOR MANAGING FILES
4) Miscellaneous
1) Investigation
¢ Scenario specific questionnaires
¢ Obtain facts and anchor with evidence for later use
• recorded statements, video, copies of necessary documents
¢ Experts
• Timing, any prior involvement with parties or loss
2) Reservation of Rights Letter
¢ Standardized letter
3) Non Waiver AgreementsQuestions?
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