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Insurer Must Defend Entire Claim
Published in the February 2010 issue of Litigation Notes - View Article
Where part of a claim was clearly covered and a part may well be excluded, a liability insurer was compelled to defend the entire claim.
The Supreme Court of British Columbia recently considered an application by an insured to compel its insurer to defend an action against the insured. The insured, Keith Hart Holdings Ltd. (“Keith Hart”) is a trucking company which was insured by Intact Insurance Company (“Intact”) under a Motor Truck Cargo Carriers Liability Policy.
On behalf of its customer, South Caribbean Supplies Ltd. (“South Caribbean”) Keith Hart transported a cargo of poles from New Westminster, B.C. to Minto Landing in the Yukon Territories. In the course of carriage the poles were damaged beyond repair and had to be replaced at a cost of approximately $20,000. South Caribbean sued Keith Hart for the cost of the replacement poles. In addition, South Caribbean was required to retain the services of another trucker to carry the replacement poles, because Keith Hart was unable to do so in the time-frame required by South Caribbean, based on its contract with the purchaser of the poles.
Keith Hart asked Intact to defend the action on its behalf. Intact acknowledged that the damage to the poles was a covered risk but that the trucking charges were excluded from coverage as being attributable to “delay, loss of market or loss of use, or any other indirect or consequential loss of any kind”.
Keith Hart sued for a declaration that it was entitled to coverage. The chambers judge reviewed the Canadian law on the subject, which holds that it is not necessary to prove that the obligation to indemnify will arise in order to trigger the duty to defend. Rather the mere possibility that a claim within the policy may succeed is sufficient.
The Court reviewed the law on consequential damages and concluded that at the current stage of the pleadings it was not clear whether the cost of transporting the replacement poles would be “direct physical loss or damage” or whether the exclusion for consequential loss would apply.
In any event, the Court considered that it would not be practical for Intact to defend only the allegations relating to the loss of the poles and to force Keith Hart to retain its own counsel to defend the claim in respect of the transportation costs. The Court therefore concluded that there was a duty on Intact to defend the entire action of South Caribbean, subject to an assessment after the conclusion of the action relating to which costs should be payable by Intact and which costs should be payable by Keith Hart.
Intact Insurance Company v. Keith Hart Holdings Ltd., 2010 BCSC 209 (CanLII)