Does an Insurance Company have a duty to defend a policyholder when the policyholder is a Third-Party?
November 17, 2017
Insurance disputes can often be long and convoluted, and the language used in insurance policies can also be very confusing, and the legal arguments tend to be technical and challenging to figure out. Given the complex nature of many of these disputes, we wanted to simplify them for our readers. This is the first in an ongoing blog series on insurance that will seek to break down the key points of major decisions, and provides relevant take-aways for our clients.
This week we explore a recent Court of Queen’s Bench decision which examined whether an insurance company had to defend the company it had insured in a Third-Party Claim.
This case involved Creative Door Services Ltd. (“Creative”) as the plaintiff, and Intact Insurance Company (“Intact”), the defendant. Creative sought a declaration that Intact had a duty to protect and defend Creative in third party proceedings that were taking place in the Court of Queen’s Bench. Intact had applied for summary judgment.
Intact insured Creative through a Commercial General Liability policy. Creative entered into a contract with AltaSteel Ltd (“AltaSteel”) in September 2009, for the supply and installation of an overhead door.
Creative supplied a third party (a subcontractor) to install the door. The director and shareholder of this third party was Marsh Miller (“Miller”). He was employed by this third party when he was injured and did not have Workers’ Compensation Board (“WCB”) coverage.
Miller was electrocuted while installing the overhead door on January 13, 2010 on the premises owned and operated by AltaSteel. He filed a claim against AltaSteel alleging negligence and occupier’s liability. AltaSteel defended against the Miller claim on August 14, 2012, alleging contributory negligence on the part of Miller.
AltaSteel began a Third-Party claim in the claim with Miller in February 2013. The defendant in this Third-Party claim was Creative. AltaSteel alleged that Creative breached their contract by subcontracting the installation of the overhead door, and by failing to confirm that the subcontractor had WCB coverage.
Relevant Policy Language
There were specific sections of the Commercial General Liability policy the court analyzed. This included the coverage, how “Contract” was defined, and the section called “Additional Agreements.”
The initial coverage grant in the Policy provides:
The Insurer agrees to pay on behalf of the Insured all sums (including prejudgment interest) that the Insured shall become obligated to pay because of the liability imposed by law upon the Insured or assumed by the Insured under contract (as defined herein), for compensatory damages because of:
(a) bodily injury (as defined herein) sustained by any person or persons;
(b) personal injury (as defined herein); and
(c) property damage (as defined herein) due to an accident or occurrence (as defined herein)
during the Period of Coverage; subject to the limits of liability, exclusions, conditions and other terms contained herein.
Where Intact agreed to defend Creative against any suits, claims, or other proceedings where it was covered under the policy, and to pay costs of litigation, pay and satisfy all judgments.
While the case reviewed the Third-Party claim, the relationship between Intact and Creative was s what was central to the motion.
Positions of the Parties
Intact argued that the burden to establish loss or damage claimed in the initial coverage section of the Policy fell on Creative.
Intact submitted that there is no possibility that the claims fell within the liability coverage. They argued that the Policy had to be read as a whole, and that the Third-Party claim did not allege any liability against Creative for “bodily harm.” The Third-Party claim, according to Intact, was a claim for breach of contract by two business entities. There had been no allegations that Creative was liable for Miller’s bodily injury.
Creative put forth several arguments:
- Intact had to defend them even if there was only a possibility that a claim fell within the coverage.
- Creative argued that the Policy provided coverage if Creative became legally obligated to pay as a result of liability that is imposed by law, or assumed by Creative
- Miller had advanced a bodily injury claim against AltaSteel, and AltaSteel sought contribution and protection from Creative. Essentially, AltaSteel wanted Creative to assume AltaSteel’s liability because of AltaSteel negligently electrocuting a worker on its premises;
- Based on the Policy, the contract, and the pleadings, Intact was s required to defend and protect Creative. It did not matter if the claim for bodily harm was against Creative directly or indirectly, as long as the claim is put forward “because of” bodily injury;
- The Policy explicitly provided coverage for tort liability (claims arising from personal injury), and contractual liability (claims arising from contracts). Therefore, Intact had to defend whether the claims are in tort or contract.
- No exclusions applied; and
- Summary judgment was premature as unknown relevant facts had yet to be determined based on the outcome of the Miller Claim and the Third-Party proceedings.
Court Analysis: Interpretation of Insurance Policies
The court used several cases from different jurisdictions, including the Supreme Court of Canada in coming to a decision. The first two cases set out the principles of interpretation that apply to insurance policies. Where language in an insurance policy is clear, then the contract is understood as it is written.
However, if the language is ambiguous or not clear, the general rules of contract construction must be employed:
- the interpretation should be consistent with the reasonable expectations of the parties, as long as that interpretation is supported by the language of the policy;
- it should not give rise to results that are unrealistic or that the parties would not have contemplated in the commercial atmosphere in which the insurance policy was contracted; and
- it should be consistent with the interpretations of similar insurance policies.
- If ambiguity remains after these principles are applied, the contra proferentem rule is employed and the policy will be construed against the insurer.
The court outlined a few more principles from other insurance cases, including the following:
- When looking at a statement of claim for the purposes of determining coverage, it may be necessary to look at the particular passages that advance a claim against a specific party, but also to look at the pleadings relating to the events where the injury occurred.
- The alleged facts from a statement of claim must be considered along with the facts alleged in the Third-Party Notice to determine whether the insurer does in fact have a duty to defend.
The court also considered the definitions of “contribution” and “indemnity” as defined by the Black’s Law Dictionary. Definitions are often put forward by the court because the meaning of words have such a large impact on the case as a whole, that it is often necessary to ensure that the parties understand what those terms mean in the context they are being used in the case.
Applying the above principles, the court held that the language and wording of the Policy were clear. The decision then rested on the interpretation of the Third-Party claim made against Creative. In consideration of all the pleadings, the court had to determine whether Creative might become obligated to pay compensation due to liability imposed by law, or if liability was assumed under contract.
At that point in time, it was not clear whether Creative would be held liable on the Third-Party claim. Creative stated the there was no express provision in its contract requiring it to arrange or confirm WCB coverage in the circumstances. So, if Creative was found liable, it was possible that this liability might not be grounded in contract. Additionally, if Creative shared responsibility with AltaSteel for any compensatory damages, those damages will be from a bodily injury.
The court concluded that there was at least a possibility that the claim fell within the coverage and Intact’s application for summary judgment was dismissed. Intact had a duty to defend Creative in Third-Party proceedings in the Court of Queen’s Bench.
The Take Away
This case touches on several insurance and contract issues. First, the language of the policy and whether it is clear or ambiguous is very important for its interpretation. Second, when Third-Party claims are brought forth, and the insurer is sure as to whether the claim will fall within the coverage of the policy, the court will review at the all the pleadings, including the pleadings in the initial claim for damages for bodily injury. Finally, if there is a mere possibility that the claim will fall within the coverage, the Insurer has a duty to defend against the claim on behalf of the insured.
Insurance policies are complicated and filled with confusing language. If you are involved in a dispute involving insurance coverage you need skilled lawyers to provide you with clear and forward-thinking guidance. The insurance lawyers at HMC Lawyers have many years of experience representing insurance companies, defending against claims for bodily injury, and dealing with insurance coverage disputes. To book your consultation and find out how we can help, call 1-800-480-3534 or contact us online. We represent individuals dealing with employment-related issues in Calgary and across Alberta.