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Portions of Insurer’s Affidavit Struck in Duty to Defend Case
Published in the July 2007 issue of Transportation Notes - View Article
On May 29, 2007, the Ontario Superior Court of Justice made a procedural ruling in a case relating to aviation isurance which, with respect, demonstrates a confusion of ideas and the application of inappropriate principles to resolve the question which presented itself.
The matter arose from an incident that occurred involving a pilot (the applicant, James McLean), who rented an aircraft from the Brampton Flying Club (the “Flying Club”), a flying school and aircraft rental facility north of Toronto.
When renting an aircraft from the Flying Club, McLean did not disclose that he intended to use the aircraft for aerial photography, an activity that requires flight at very low altitudes.
While the aircraft was under McLean’s care and control, it collided with transmission lines owned by Hydro One Networks Inc., a local power utility. Following the collision, Hydro One commenced legal proceedings against the Flying Club and McLean, seeking recovery of damages associated with the compromised transmission lines.
The Flying Club had an insurance policy with the respondent, Global Aerospace Underwriting Managers (Canada) Limited (the “insurer”). In accordance with paragraph 20 of the policy, coverage extended to “any other person provided that they are acting with [the Flying Club’s] permission in the operation, ownership or maintenance of the aircraft …”
The insurer denied coverage to McLean and refused to defend him in the action commenced by Hydro One on the basis that he did not advise the Flying Club that he would be using the aircraft for the purposes of aerial photography (an act which, presumably, is not permitted under the rental agreement). In any event, McLean allegedly flew at altitudes of less than 1,000’ AGL, an action that is not permitted, in these particular circumstances, by Canadian legislation and regulations.
McLean brought an application before the Court requesting, based on the language of paragraph 20 of the insuring agreement, a declaration that the insurer had a duty to defend him in the action commenced by Hydro One, and further, that he was entitled to be defended by counsel of his choosing, at the expense of the insurer.
At the outset of the hearing, counsel for the insurer requested an adjournment because McLean’s counsel had included, in his factum, a separate, independent and alternative basis upon which a duty to defend may be found. This was delivered a few days before the hearing and counsel for the insurer properly took the position that, in order to show that there was no new and independent coverage, it would need to file evidence as to the general understanding in the industry of the effect of an endorsement relied on as the source of the alleged additional coverage. At this point the main motion was adjourned.
The matter then went seriously off the rails when counsel for the pilot brought a preliminary motion to strike substantial parts of an affidavit filed by the insurer on the main motion. Although the contents of the affidavit were not described in the Court’s reasons, it appears that they dealt with the specifics of the incident — and likely included particulars of the evidence that McLean did, in fact, engage in aerial photography and flight at low altitudes.
McLean argued that the paragraphs in question were improper because they were not relevant to the ‘duty to defend’ issue. McLean’s position was that, for the purposes of deciding whether there was a duty to defend, the only evidence that was relevant was the statement of claim in the Hydro One proceedings and the insurance policy. There is indeed undoubted case law which restricts the type of material a court may consider when the issue is whether a claim made comes within the scope of coverage. Where the formal claim does allege facts which, if proven, would give rise to a duty to indemnify, the duty to defend arises. It is not possible to rely on extrinsic evidence to show, for example, that some essential allegation would be bound to fail.
However, the case law which restricts the evidence which can be introduced on the duty to defend issue is not at all germane to the issue before the court in this instance. As counsel for the insurer rightly pointed out, the question was whether the insured had coverage in the first place. There can be no duty to defend an entity which has no possible right to indemnity under the policy in question.
In the matter at hand, the insurer alleged that McLean misrepresented to the Flying Club the use that he would make of the aircraft (i.e. aerial photography), and that, in any event, he vitiated any permission he had to use the aircraft when he flew below 1,000’ AGL. The insurer had a right to have this matter resolved s and the rules respecting exclusion of extrinsic evidence on a duty to defend motion have no application to this question.
Unfortunately, the motion judge was led into error by the plaintiff’s erroneous characterization of the issue before the court. The decision at this point is by no means clear, but the motion judge appears to have concluded that the whole issue depended upon whether McLean was an individual who fit into the class of people who were intended to be insured under the policy. He stated that “...when [McLean] entered into the rental agreement, there was no doubt it was reasonable for him to expect that he was insured, and nothing to suggest that the Brampton Flying Club did not have a similar understanding. In fact, [McLean] paid $2 to protect himself from any unsubrogated claim that might be made against his deductible interest.” This may be so, but the remark would appear to have no relevance to the issue raised by the insurer which was whether McLean had forfeited any right to claim indemnity under the policy.
The motion was adjourned for further consideration. However, given the motion judge’s appreciation of the issues and the fact that he ordered the affidavit put forward by insurers struck in part, one must have some concern for the ultimate correct disposition of the matter.
McLean v. Global Aerospace Underwriting [2007] O.J. 2116 (Ont. Sup. Ct.)