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Duty to Defend Extends to Covered Claims Only
Published in the June 2009 issue of Litigation Notes - View Article
The Ontario Superior Court of Justice rules that an insurer’s duty to defend applies only to those parts of the claim for which there is coverage under the policy
Atlific Hotels and Resorts Ltd. (carrying on business as Deerhurst Resort and hereinafter referred to as “Deerhurst”) is a resort hotel in Huntsville, Ontario. Deerhurst contracted a snow removal company to provide snow and ice removal services during the winter months. As part of the contract with the removal company Deerhurst was named as an additional insured but only with respect to the snow and ice removal services.
A hotel guest was leaving an evening program at the resort’s conference centre, slipped and fell on an icy pathway and was seriously injured. The guest sued both Deerhurst and the contracted snow removal company in one action.
The Plaintiff’s claim was organized into three issues: (i) negligence on the part of all of the defendants relating in various ways to the removal of snow and ice; (ii) negligence on the part of the Deerhurst defendants in the operation and management of the hotel, including inadequate lighting and the lack of non-slip matting on the walkways, the failure by management to cancel the evening program at the conference centre so that the guests could have stayed in their rooms, the failure to cut the program short so that the participants could have returned to their lodgings sooner and more safely, and the failure to offer the plaintiff overnight accommodations in the main lodge until the walkways were cleared of snow and ice and made safe for use; and (iii) occupiers liability.
The snow removal contractor had insurance covering snow and ice-related claims through the Aviva Insurance Company of Canada (“Aviva”) Aviva provided a defence to the snow removal contractor but refused to provide a separate or additional defence for Deerhurst. Deerhurst brought an application for a declaration that Aviva must defend the entire action on their behalf.
The Superior Court of Justice dismissed Deerhurst’s application in part, holding that Aviva should only be responsible for defending the portion of the claim that was covered by the insurance policy. The Court referred to Nichols v. American Home Assurance Co. where it was stated that “…requiring the insurer to defend claims which cannot fall within the policy puts the insurer in the position of having to defend claims which in its interest should succeed…for this reason, the practice is for the insurer to defend only those claims which potentially fall under the policy, while calling upon the insured to obtain independent counsel with respect to those which clearly fall outside its terms.”
The Applicant cited the cases of Halifax Insurance v. Innopex and RioCan Real Estate Investment Trust v. Lombard Insurance in support of its position that if “…one claim falls within coverage, the insurer must defend the entire action, including the non-covered claims”. The Court found both cases to be distinguishable. RioCan also involved a slip-and-fall incident involving an occupier defendant and a snow removal contractor defendant. The Court in that case concluded that where there is a duty on an insurer to defend one of the claims made by an insured, and that claim embodies the “true nature of the claim”, a duty to defend the entire claim arises.In that case, the negligence of the snow removal company was the “true nature” of the claim and the insurer was obliged to defend the entire action.
In this case the Court was unable to find that the snow and ice removal issue was the “true nature” of the claim. This claim was comprised of three separate issues as described above. The Court stated that “…the snow and ice claims appear, at first glance, to be predominant but the claims alleging negligence in hotel operations and management are formidable and can stand on their own”.
Aviva also argued that since the Plaintiff sued both Deerhurst and the snow removal company she intended for each group to be responsible for claims made against them. Hence, the contractor alone should be responsible for the snow removal and Deerhurst should be responsible for the negligence and occupier’s liability. Aviva took the position that by defending the contractor, they were de facto defending Deerhurst in connection with the snow and ice removal claim. The Court did not agree with this argument and stated that “…allegations set out in the pleadings, in my view, do not draw the distinctions or differentiations suggested by Aviva. All of the defendants are being sued for negligence relating to the ice and snow claims, not just the contractor.”
Aviva also argued that because Deerhurst appeared to have property insurance coverage with St. Paul’s Traveler, that there was no duty to defend as Aviva’s coverage would be excess and according to the policy there would be no duty to defend under those circumstances. The Court advised that if this was Aviva’s position then they would need to deal with it in a separate proceeding.
The Court concluded that Deerhurst’s application for a declaration that Aviva should defend all of the claims in the entire action would be dismissed.However, Aviva was obliged to provide a defence to Deerhurst on the snow and ice-related claims.
The G8 Summit will be held at Deerhurst in 2010. Let’s hope that no world leaders slip and fall.
Atlific Hotels and Resorts Ltd. v. Aviva
Insurance Company of Canada, 2009 CanLII 24634